The document discusses the classification, apportionment, and distribution of overheads. It defines overheads as business costs related to day-to-day operations that vary by industry. It outlines the steps to apportion overheads, including classification, collection, allocation, and absorption into production units. Various methods to reapportion service department overheads to production departments are also presented, including direct distribution and reciprocal methods. An example secondary distribution summary and calculation of department overhead rates based on direct wages is provided.

1. Cost & Management Accounting
Unit 2
Prepared By
Jissy.C
Assistant Professor

2.  OVERHEADS
 Overheads are business costs that are
related to the day-to-day running of the
business.
 Overhead expenses vary depending on
the nature of the business and the
industry it operates in.
 Overhead costs are important in
determining how much a company must
charge for its products or services in
order to generate a profit.

3.  Steps in Apportionment of overheads
 Classification of overheads
 Codification of overheads
 Collection of overheads
 Allocation & apportionment of overheads
 Re-apportionment of service Dept costs to
production department
 Absorption of overheads by production units

4.  Classification of Overheads
Classification of
Overheads
Function wise
Classification
Factory O/H
Administrative O/H
Selling O/H
Distribution O/H
Element wise
Classification
Indirect Material
Indirect Labour
Indirect Expenses
Behaviour wise
Classification
Fixed O/H
Variable O/H
Semi –
Fixed/Variable O/H

7. Statement showing apportionment of overheads or primary distribution
summary
Particulars Basis/Ratio Total A B C D
Rent Area(15:11:9:5) 1000 375 275 225 125
Repairs Value of plant(4:3:2:1 600 240 180 120 60
Depre Value of plant(4:3:2:1 450 180 135 90 45
Light Area(15:11:9:5) 100 37.50 27.50 22.50 12.50
Supervisio
n
N.of. Wrker(6:4:3:2) 1500 600 400 300 200
Insurance
of plant
Value of plant(4:3:2:1 500 200 150 100 50
Employees
insurance
N.of. Wrker(6:4:3:2) 150 60 40 30 20
power Value of plant(4:3:2:1 900 360 270 180 90
TOTAL 5200 2052.50 1477.50 1067.50 602.50

9.  Primary Overhead Distribution summary
Particular Basis & Ratio Total A B C D E
D.Wages Atual 4000 3000 1000
Rent Floor space
(4:5:6:4:1)
20000 4000 5000 6000 4000 1000
Indirect
wages
Direct wages
(6:4:6:3:1)
6000 1800 1200 1800 900 300
Depr Machine
(12:16:20:1:1)
40000 9600 12800 16000 800 800
Power Hp Machine
(6:3:5:1)
6000 2400 1200 2000 400 -
Production Dept Service Dept
Lightin
g
Light point
(2:3:4:2:1)
2400 400 600 800 400 200
S Exp Direct wages
(6:4:6:3:1)
40000 12000 8000 12000 6000 2000
TOTAL 118400 30200 28800 38600 15500 5300

11.  Primary Overhead Distribution summary
Particular Basis & Ratio Total A B C D E
D.Wages Atual 8000 4000 4000
D.Material Actual 10000 6000 4000
Stores
overhea
d
Material used
(6:4:6:3:1)
1600 480 400 320 240 160
Depr Asset Value
(5:3:2:1:1)
24000 10000 6000 4000 2000 2000
General
overhead
Wages paid
(7:6:5:1:1)
40000 14000 12000 10000 2000 2000
Production Dept Service Dept
Rent &
Rate
Area Occupied
(4:3:3:1:1)
2400 800 600 600 200 200
Motive
Power
Kwh(8:6:6:2:3) 6000 1920 1440 1440 480 720
Repairs Asset Value
(5:3:2:1:1)
4800 2000 1200 800 400 400

12. Electrical
Lighting
No.of Points
(2:3:3:1:1)
800 160 240 240 80 80
Labour
Welfare
No.of
employees
(4:3:3:1:1)
12000 4000 3000 3000 1000 1000
TOTAL 109600 33360 24880 20400 16400 14560

13.  REAPPORTIONMENT OF OVERHEADS
 Reapportionment of overheads refers to the process of apportioning service
department overheads to production department . Overheads that are apportioned to
service department are necessarily to be reapportioned because whatever expenses
that are incurred in service department must be naturally borne by production dept.
Hence, the overheads that are apportioned to service department are taken & and
reapportioned to production department so that service department show nil
balance. For the purpose of reapportionment summary known as Secondary
Distribution Summary is to be prepared.
Methods of Reapportionment
Apportionment to
Production department only
Direct Distribution Method
Apportionment to all the department only
Non reciprocal
Methods
Step ladder Method
Reciprocal
Method
1)Simultaneous Equation
Method
11)Repeated Distribution
Method
III)Trial & Error Method

14.  A manufacturing unit has three production Dept & four service dept. The
expenses of all these seven department as per primary distribution summary
were:

15.  Secondary Distribution Summary
Particulars Basis & Ratio Total Dept A Dept B Dept C
Prodtn O/H as per PDS PDS 48000 20000 18000 1000
Service Dept: Stores Value of stores
5:3:2
4000 2000 1200 800
Time Keeping No. of
.Emplys
4:3:3
3000 1200 900 900
Power HP Machne
3:3:2
1600 600 600 400
Canteen N.of.Emplys 1000 400 300 300
TOTAL 57600 24200 21000 12400

16.  The following data were obtained from the books of a company for the half-year ended 30
th june 2010.Calculate the department overhead rates for each of the production dept
assuming that the overheads are recovered as a percentage of direct wages

17.  Primary Overhead Distribution summary
Particular Basis & Ratio Total A B C D E
D.Wages Atual 2000 1000 1000
D.Material Actual 2500 1500 1000
Stores
overhea
d
Material used
(6:5:4:3:2)
600 180 150 120 90 60
Motive
Power
Kwh(8:6:6:2:3) 1500 480 360 360 120 180
Electric
Light
Light Point
(2:3:3:1:1)
400 80 120 120 40 40
Production Dept Service Dept
Labour
Welfare
Employees
(2:3:3:1:1)
1500 300 450 450 150 150
Depreci
ation
Asset Value
(5:3:3:1:1)
6000 2500 1500 1000 500 500
Repairs Asset Value
(5:3:3:1:1)
1800 750 450 300 150 150

18. General
O/H
Direct wages
(7:6:5:1:1)
10000 3500 3000 2500 500 500
Rent &
Rate
Area
(4:3:3:1:1)
1200 400 300 300 100 100
TOTAL 27500 8190 6330 5150 4150 3680
Service Dept
Exp
Apportioned
to prdn Dept
O/H of X
O/Hof Y
4:3:3
7:6:5
1660
1431
1245
1227
1245
1022
-4150
-
-
-3680
TOTAL 11281 8802 7417 - -

19.  Calculation of Dept O/H Rate Based On Direct Wages
 Dept O/H Rate:Total Production Overheads/Direct Wages X100
 A =11281/7000 X100 =161.16%
 B=8802/6000X 100 =146.71%
 C=7417/5000 X100 =148.34%