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548 ULOW s methods of re-distribution of service department costs to LLA departments. 1. Direct re-distribution method 2. Step distribution method 3. Reciprocal Services method
548 ULOW s methods of re-distribution of service department costs to LLA departments. 1. Direct re-distribution method 2. Step distribution method 3. Reciprocal Services method a. Simultaneous Equation Method b. Repeated Distribution Method c. Trial and Error Method Direct re-distribution method Under this method, the costs of service departments are directly apportioned to production departments without taking into consideration any service from one service department to another service department. Thus, proper apportionment cannot be done on the assumption that service departments do not serve each other and as a result the production departments may either be overcharged or undercharged. The share of each service department cannot be ascertained accurately for control purposes. Budget for each department cannot be prepared thoroughly. Therefore, Department Overhead rates cannot be ascertained correctly. Illustration 14:In an Engineering factory, the following particulars have been collected three months' period ended on 31" March, 2007. You are required to prepare Production Overheads Distribution Summary showing clearly the basis of apportionment where necessary, Production Departments Service Departments A B D E Direct Wages Rs. 2000 3000 4000 1000 2000 Direct Material Rs. 1000 2000 2000 1500 1500 Staff Nos. 100 150 150 50 50 Electricity Kwh. 4000 3000 2000 1000 1000 Light Points No. 10 16 4 6 4 Asset Value Rs. 60,000 40,000 30,000 10,000 10000 Occupied 150 250 50 50 50 Area Sq.m. The expenses for the period were: Motive power Rs.550; Lighting Power Rs.100; Stores Overheads Rs.400; Amenities to Staff Rs.1500; Depreciation Rs.15,000; Repairs and Maintenance Rs.3,000; General Overheads Rs.6000; and Rent and Taxes Rs. 275. Apportion the expenses of service department E in proportion of 3:3:4 and those of service department D in the ratio of 3:1:1 to departments A, B and C respectively
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