Alocation of Service Costs

Prodn.Cost Centres O/H

Fabrication 10,000
Assembly 4,000

Service Depts
Workshop 2,000
Powerhouse 3,000

1. Workshop costs are to be apportioned

on the basis of Equipment Cost

% (if ignoring
Equipment Service cost
Cost % centre Alloc)
Fabrication 240 60 63.16
Assembly 140 35 36.84
Powerhouse 20 5
400 380

2. Powerhouse costs are to be apportioned

on the basis of Electricity Used

% (if ignoring
Service cost
'000 kwh % centre Alloc
Fabrication 270 75 88.24
Assembly 36 10 11.76
Workshop 54 15
360 306
Direct Allocation
Fabrication Assembly Workshop Powerhouse Total

Budgeted O/H 10,000 4,000 2,000 3,000 19,000

Allocation of
Powerhouse Costs 2,647 353 3,000

Allocation of
Workshop Costs 1,263 737 2,000

Total 13,910 5,090 0 0 19,000

Workshop 63.16% 36.84%

Powerhouse 88.24% 11.76%
Single Step Method

Fabrication Assembly Workshop Powerhouse Total

Budgeted O/H 10,000 4,000 2,000 3,000 19,000

Allocation of
Powerhouse Costs 2,250 300 450 3,000

12,250 4,300 2,450 0

Allocation of
Workshop Costs 1,547 903 2,450

Total 13,797 5,203 0 19,000

Allocation Ratios

Workshop Costs %
Fabrication 60
Assembly 35
Powerhouse 5
Powerhouse Costs
Fabrication 75
Assembly 10
Workshop 15

Fabrication Assembly Workshop Powerhouse

Budgeted O/H 10,000.00 4,000.00 2,000.00 3,000.00

Step 1
Alloc of p/w costs 2,250.00 300.00 450.00 -3,000.00
12,250.00 4,300.00 2,450.00 0.00
Alloc of w/s costs 1,470.00 857.50 -2,450.00 122.50
13,720.00 5,157.50 0.00 122.50
Step 2
Alloc of p/w costs 91.88 12.25 18.38 -122.50
13,811.88 5,169.75 18.38 0.00
Alloc of w/s costs 11.03 6.43 -18.38 0.92
13,822.90 5,176.18 0.00 0.92
Step 3
Alloc of p/w costs 0.69 0.09 0.14 -0.92
13,823.59 5,176.27 0.14 0.00
Alloc of w/s costs 0.08 0.05 -0.14 0.01
13,823.67 5,176.32 0.00 0.01
Step 4
Alloc of p/w costs 0.01 0.00 0.00 -0.01
13,823.68 5,176.32 0.00 0.00
Alloc of w/s costs 0.00 0.00 -0.00 0.00
13,823.68 5,176.32 0.00 0.00

Fabrication Assembly Total

Powerhouse 2,343 312 2,655
Workshop 1,481 864 2,345

3,824 1,176 5,000

To
From Powerhouse Workshop
Powerhouse 0 123
Workshop 469 0

469 123 592

Reciprocal Method Solution

 Initial Embedded Fabrication Assembly Total
X = Workshop Cost = 2,469 2,000 469 1,481 864 2,346
Y = Powerhouse Cost = 3,123 3,000 123 2,342 312 2,655
5,592 592 3,824 1,176 5,000

Fabrication Assembly Total

60% 35% 95%
75% 10% 85%
2,345
2,655
Reciprocal Allocation

X = Workshop Cost
Y = Powerhouse Cost

X = 2000 + 0.15 Y ..(1)

Y = 3000 + 0.05 X ..(2)
0.15 Y = 450 + 0.0075 X ..(3)
- 0.0075 X = 450 - 0.15 Y ..(4)
0.925 X = 2450 ..(1) + (4)
X = 2,469 2,346
Y = 3,123 2,655 Transfers to prodn. Centres
5,592 5,000

Allocations

Fabrication Assembly Total Workshop Powerhouse

Workshop 1,481 864 2,346 123
Powerhouse 2,342 312 2,655 468

3,824 1,176 5,000 592

X - 0.15 Y = 2000 ..(1a)

-0.05 X + Y = 3000 .(2a)

1 -0.15 X 2000
-0.05 1 Y 3000

Equations Constants Solution

2000 2,000 x= 2,468.51
3000 3,000 y= 3,123.43
A.Indirect Cost Centres
General Admin 2,000
Personnel 1,000
Purchase 1,000

Total General Overheads 4,000

Production Cost Centres Service Cost Centres

Fabrication Assembly Powerhouse Workshop
Investment 4,200 2,000 1,000 800 8,000
Direct Labour Hours 2,100 3,500

B.Initial Allocation to Cost Centres

Allocation Of Genl O/H 2,100 1,000 500 400 4,000
Indirect Labour 3,400 2,200 500 1,000
Supplies 1,000 400 2,000 600
Others 3,500 400
TOTAL 10,000 4,000 3,000 2,000 19,000
C. Re-assignment of Service Centre Costs
Powerhouse 2,343 312
Workshop 1,481 864
TOTAL 13,824 5,176
D. Calculation of Overhead Rate
Overhead Rate 6.5829 1.4789

Job 101 10000 4000 2000 3000

(Started and Finished in the given time period)
No.of items in Job 100
Direct Labour hours uesd in Fabrication 2,000
Direct Labour hours uesd in Assembly 2,200

Fabrication
Direct Materials 35,000
Direct Labour 40,000
Allocation of Overhead 13,166
Total 88,166

Assembly
Direct Materials 500
Direct Labour 44,000
Allocation of Overhead 3,253
Total 47,753

Total Cost 135,919

Cost per Unit 1,359.19