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Factory Overhead -Primary Distribution Homework Help, Tutoring
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Factory Overhead -Primary Distribution Assignment / Homework Help
Factory Overhead -Primary Distribution:
Commonly Used Bases of Primary Distribution:
  1. Area Occupied (i.e. floor space occupied):
    2. On the basis of area occupied, expenses which are related to accommodation such as payment of rent, rates & taxes etc. are primarily distributed. Lighting expense, in the absence of other more specific basis, is also distributed on this basis. If no other appropriate basis is available, distribution of the salary paid to the floor supervisor or floor manager should be done on this basis.
  1. Kilowatt Hours/ Horse Power of Machines:
    2. Cost incurred with respect to power is distributed on this basis. However, when in different departments, the hours of work rapidly vary, in that case, instead of the horse power only, Horse power * Machine hours should the basis.
  1. Number of Employees:
    2. Distribution of canteen expenses, time-keeping, personnel department expenses, first aid etc. are done on basis of the number of employees. In fact, on this basis, all welfare expenses which are dependent upon the number of employees should be distributed. Even on this basis, distribution of employer’s liability insurance is also made.
  1. Departmental Direct Wages:
    2. For the purpose of distributing expenses of factory overhead, this basis is commonly used in practice. On this basis, distribution should be done of only those items which may vary according to the direct wages, for example, premia paid for the workmen’s compensation insurance. Again, expense relating to supervision, although it does not appear very appropriate, is often distributed on this basis.
  1. Production hours of direct workers:
    2. On this basis distribution of those expenses are done which are related to the works management, expenses of general overtime & most of the general expenses. Machine hours instead of production hours of direct workers should be used as the basis, if the work is done mainly with the help of machines.
  1. Light Points & Wattage:
    2. On the basis of number of light points, distribution of the lighting expenses i.e. electricity is done. If the wattage of the points is in uniformity, then in that case, this becomes appropriate. On the other hand, if the wattage vary, then instead of the number of light points ,distribution should be done on the basis of wattage . Again, the basis of distribution should be Wattage * Hours of work, in case the hours of work in the department vary.
  1. Capital Values of Respective Assets:
    2. On the basis of capital values of the respective assets, distribution of repairs & insurance of building, plant & machinery, depreciation of building, plant & machinery etc. are made. Similarly, on the basis of the stock value, distribution of the insurance of stock is done & so on.
  1. Technical Estimates:
    2. On the basis of technical estimates, distributions of some of the expenses are made amongst the departments. For example, charges relating to steam.
Illustration: ABC ltd has five departments of which X, Y & Z are production departments while A & B are service departments. The following are the particulars relating to the departments:
X Y Z A B
Floor area occupied (sq. meters) 360 240 200 140 60
No of employees 40 30 24 16 10
Horse power of machines 1200 800 1000 __ __
Wages ($) 100000 80000 60000 30000 10000
Value of plant ($) 480000 400000 320000 200000 100000
Value of buildings ($) 1000000 600000 400000 200000 100000
No of light points 60 40 30 20 10
Value of stocks ($) 300000 200000 100000 ___ ___
Distribute the following costs to the various departments on the most suitable basis:
Rent, rates & taxes $ 10000, Repairs to building $ 23000, Repairs to plant $ 15000, Depreciation of plant $ 45000, Insurance of stock $ 3000, Insurance of plant $ 1500, Power $ 9000, Lighting $ 1600, Supervision $ 12000, Premia for workmen’s compensation insurance $ 2800
Note: The direct materials & wages of the service departments should be included in the total overhead of those service departments.
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