Distribution of Overheads, Cost Accounting Video Lecture | Cost Accounting - B Com

hi in this video I am going to explain
distribution of overheads what is the
meaning of overheads overhead means of
indirect expense in an organization
generally all the expenses are
classified into two categories the major
categories of two things one is direct
expense another one is indirect expense
er the impact expense in the form of in
dark material indirect labor or indirect
expenses so all the expenses in that
expenses combinely called as overheads
and boards can be classified into
different categories like factory
overheads office and administrative
overhead selling and distribution
overheads
these are the different types of
overheads so in this video I am going to
explain distribution of overheads okay
before we go for the problem let me
explain the difference between
allocation and apportionment say
allocation means are a certain items can
be easily allotted to a particular
department where the particular
transaction is related to the particular
department in such case you can directly
enter the full amount into the
particular department why because the
particular transaction that particular
item that is a particular expense is
related with that particular department
only in that case you can directly
allocate the particular expense into the
particular department so this is called
as allocation whereas the apportionment
means that is a distribution of
overheads distribution means
apportionment apportionment means where
you cannot mean enter the entire
transaction in one particular department
why because the particular expense is
not related with only one department
that expense can be applicable to all
the department of both production
department as well as his department in
such case you need to apportion
apportion means distribute the expense
in an equitable basis and after
distributing the amount after
calculating the different amount each
and every component will be recorded in
each and every department is called
apportionment or distribution the
distribution can be done in two
and methods one is a primary
distribution and everyone is secondary
distribution primary distribution
otherwise called as apportionment
secondary distribution otherwise called
as a redistribution of reapportionment
chains up in this video I am going to
explain only distribution of overheads
that is primary distribution or
apportionment of overheads are in the
next video I will explain redistribution
or a reapportionment ax so let us see
the problem
see James company has five departments
ABC T or producing Department and E is a
service department so two different
departments or their first one is
production department in production
department there are four divisions are
there in service department only one
department is a all together five
departments the actual cost for a period
are as follows so these are the actual
expenses is given separately repairs
total repast four thousand friend five
thousand depreciation two thousand four
hundred supervision four thousand
insurance thousand employees liability
of employees insurance 600 lighting that
is light expense nine hundred rupees so
these are the total expense incurred for
the particular month or so now the
following data are available in respect
of the fire departments say these are
the various expenses related to a
particular month and apart from that
we've given some additional informations
regarding each department separately
area square feder
so a department a occupied 150 square
feet and Department B 120c 100g 8850
number of workers in each department is
given 30 employees 25 20 20 and 10 total
wages a department a 20,000 be 18,000
say to a thousand d 10,000 e 5000 and
value of planta in department a we have
one plant from the value of lattice
25,000 B 23:15 d-10 each six thousand
value of stock in F Department a 18 B 15
10 g8 there is no stalking Department ey
because it is a service department so
these are the 4 production department so
there we in require stock but in nervous
Department we need not have any stalker
so these are the information regarding
fire departments and with the help of
the above information we ask you to find
out apportionment of cost to the various
departments on the equitable basis in C
so these are the expenses we cannot
directly enter the 4000 repair cost to
one particular department for example
repairs four thousand no we cannot
record enter four thousand two
department a in the same way how much
amount they are paid as a renter five
thousand you cannot enter five thousand
in department C because your paid rent
for the whole Factory okay in that
factory we have five departments so you
need to distribute you need to apportion
each and every expense into five
different departmental okay on any
cutable basis so we need to follow some
base in order to distribute in order to
apportion each and every expense into
different department is called
apportionment before we solve the
problem let us see what are the various
basis of apportionment is available
based on that you can easily apportion
all the expenses into different
departments these are the basis of
apportionment are based on this you can
easily solve this problem for example
factor renter
so the rent is paid based on the area
you need to find how much area occupied
by each and every department so based on
the area occupied by the department you
can apportion the factory rent power
so power can be kilowatts per are based
on the consumption of each and every
department we can allocate we can
apportion the expenses of power
depreciation you should a depletion will
be calculated for asset that is the
plant okay based on the value of
possible value of plant you can allocate
the dip
is a Shinto different departments
indirect material so based on the direct
material used by the different
departments in the same way in that
wages can be apportioned based on the
directive wages okay and repairs to
apply and so based on the plant value
you can apportion the repairs to
different departments lighting so
lighting can be divided based on the in
the light points or floor area but which
one is available in your problem based
on that you can apportion this
particular expense er then supervision
so usually this expense will be a
quotient based on the number of
employees in each department and then
fire insurance of stock okay usually an
organization they need to take insurance
fire insurance against the risk of fire
okay so this is this will be distributed
based on the stock value for each and
every department then fire insurance of
asset capital etcetera so this
excellence will be a portion based on
the value of capital assets then ESI or
Provident Fund contribution of employer
so there will be two two types of
contribution one is employee that is an
employee one contribution another one is
employer contribution so employer
contribution is an expense for the
organization okay so this expense will
be a portion based on the wages of each
department not based on the number of
employees so this contribution is based
on the wage okay the wages of each
department then labor welfare expenses
so this will for excellence will be a
portion based on the number of employees
then general factory overheads can be
apportioned based on labor are or
directive ages so any general factory in
the expenses can be apportioned based on
the labor ask or direct wages so these
are the basis of apportionment with the
help of this you can easily solve the
distribution of overhead problem for
apportionment
you need to have columns like this the
first column for expenses or what are
the Express is given in the
that you have to write here and you have
to write the basis on what basis the
particular amount you are going to
spread to various Department the
particular transaction the particular
extends how we are going to divide on
what basis that you have to write here
and you have to write the total amount
and the split up will be written here so
we have two two departments in the one
is production department another one is
service department in production
department we have four departments ABC
and D in service department one
department is they're all together hi
departments are there now how we are
going to allocate or a portion each and
every day expenses to various department
that you have to show with the help of
this format a repast how much four
thousand right here okay so now repair
four thousand rupees is they know how we
are going to allocate the four thousand
or a portion the four thousand to
different Department on what basis you
are going to divide that you have to
show here so reprisal so repairs will be
a portion based on watch yeah some
information is given in the problem
known area okay just check whether the
repair can be allocated based on the
area no number of workers total wages
value of plant value stock so these are
the information is given for portion man
you have to apply the correct basis for
each and every expenses separately so
just see repair on what basis you can
allocate value of plant because the
repair is incorporated with the value of
planter okay so you can apportion that
particular excellence based on the value
of plant plant value so what is the
plant value ratio just see twenty five
thousand twenty thousand fifteen
thousand ten thousand six thousand you
can derive the ratio that is 25 this to
twenty is to 15 is to 10 is to 6 so
based on this you can divide the four
thousand now find the total twenty five
plus 20 plus 15 plus ten plus
so what is the total 76 no now 4,000
into 25 divided by 76 what is the value
thousand three sixteen okay if it is
point you can convert a 0.5 means you
can convert into six for example one
thousand three one five point six means
you can convert the pie into six whole
number can round up the value okay the
next step what is the second one be
department be 4,000 into twenty four
thousand into 20 divided by 76 what is
the value thousand fifty three then
first see four thousand into 15 divided
by seventy six seven eight nine then
forty four thousand into 10 divided by
Scientifics 526 for e6 is there no four
thousand into six / 76 three one six now
just get the total just see whether it
is equal to four thousand or not if it
is not amiss you can easily round off
any one value to get the exact 4000 so
repair we have entered and second one
rent how much five thousand French five
thousand so on what basis you apportion
this particular expense so we have some
information regarding different
Department no just see the term rent
which is related with the area of square
feet that is each you'll pay rent based
on the area occupied by the organization
you'll pay rent for the area for the
place okay so this expense can be a
quotient based on the area occupied by
each and every departments greatly okay
so 15 is to 12 is to 10 is to 8 is to
515 is to 12 is to 10 is to 8 is to five
just get the total 15 plus 12 plus 10
n plus eight plus five 50 so 50 here
scientist Santi six okay now just
calculate 5,000 into a department is
obtained of obtained by fifty thousand
five hundred for be five thousand into
twelve by fifty thousand two hundred
first see five thousand into 10 by fifty
thousand okay 4d five thousand in two 8
by 15 for a five thousand enter five by
50s now depreciation on a two thousand
four hundred so on what basis you are
going to a portion just check them the
term depreciation is related with the
value of plant because vaporization is a
permanent loss of asset the value of
positives goes on decreasing because of
depreciation okay so the deposition can
be approaching based on the value of
plant plant value so what is the ratio
already we have calculated now what is
the ratio 25 is to 20 is to 15 into 10
is to 6 total 76f based on this ratio
you can apportion 2400 in two different
departments 789 632 474 3 1 6 1 89 you
have to round up the value in next
expense supervision how much 4000 is
aina just like supervision
how you're going to apportion these
expenses just say the apportionment err
so which one is applicable for
supervision areas not applicable total
wage is not applicable
valuefn and also not applicable value
stop also not not applicable so which
one is applicable number of workers the
supervision is applicable to number of
workers so based on that only he will
supervise 30 is 225 is 220 is 220 is 210
basis number all-purpose 30 is 225
mister 20 is 220 is 210 find the total
or not five this apportion 4000 into
30/1 not 5000 143 952 then 760 tools 760
to 381 insurance okay so the term
insurance is applicable to value of
stock they will take insurance to
protect the value of stock okay there is
any fire accident occurs in the premises
they can get the claim from the
insurance company so usually they'll
take the insurance against the stock the
expense insurance is applicable to value
of stock so based on this you can divide
the particular expense to different
departments and this particular thing is
not applicable for service department so
you cannot apportion the particular
excellence insurance to service
department why because the value stock
is there only in for production
departments we can apportion the
particular expense only for for
production departments insurance stop
thousand 18 is 215 in store 10 is 2 8 4
e no okay just skip it Odin 51 just
opposition thousand into 18 by 51 what
is the value 3 53 294 196 157 fugly no
next expense the employer liability of
employees insurance so this is also on
of the expense which it should be
payable by the employer this employs
liability so this will be a portion
based on the wages based on the wage is
not based on the number of the workers
why because they take insurance based on
the wage okay so this expense you can
apportion based on total wages for each
and every department employees liability
Oh employees insurance how much 600 is
there no on what basis you're going to
apportion wages 20 is to 18 instead of
12 is to 10 is to 5 what is the total 20
plus 18 plus 12 plus 10 plus 5 65 so
with this we can allocate this expense
185 166 tribble 192 and 46 next one
light how much nine hundred how we will
divide on what basis you will divide to
see the term light is applicable with
the area the square area how much of
area occupied by different department
based on that you can apportion the
expense of lighting based on area how
much 900 No
so what is a ratio 15 is 2 12 is 2 10 is
2 8 is 2 5 total 50 just multiply and
find the value - 17 - 16 18144 and 9
take now get the total just find the
total for total expenses which is
recorded in this column 17900 then then
Department a 5556 then 4000 I 13 then
three thousand five twelve then two
thousand seven ninety seven ten thousand
five twenty-two after finding the total
for each and every department separately
once again you can cross-check with this
total value just find the total for fire
departments five thousand five fifty six
plus four thousand five thirteen plus
three thousand five twelve plus two
thousand seven ninety seven plus
thousand five twenty-two what is the
total
17900 so it is equal I hope you could
understand this concept clearly in the
next video I am going to explain a
reapportionment of overhead thank you