Apportionment of Overheads Examples

As we know, Apportionment of overhead  means to divide total cost of overhead among different departments or branches or cost centers of a company. So, for knowing it detail, it is better to understand it with practical examples. 


Here we have given two examples for learning apportionment of overheads. 

1st Example 

The Bengal Wholesale Co. is making a study of the relative profitability of the two products it handles. In addition to direct costs, indirect distribution costs to be allocated between the two products are as follows. 

Inventory charges (taxes, insurance etc.) Rs. 7800, Storage costs  (warehousing etc.) Rs. 14000, packing and shipping costs Rs. 72000, Salesman salaries Rs. 85000. Order entry and billing Rs. 45000.

The following information is available :

	Product A	Product B
Selling Price per unit Rs.	50	100
Cost per unit Rs.	30	60
Annual Sales (units)	10000	8000
Average Inventory (units)	1000	800
Number of one time invoices	2500	2000

One unit of product A requires a storage space twice as much as product B. The cost to pack and ship one unit is the same for both. 

Salesman are paid salary plus 5% commission on sales and equal amount of efforts are put forth on the sales of each of the products.

(A )(Set up a schedule showing how you would apportion the indirect distribution overhead between products. )

(B) (Prepare the statement showing the relatively profitability of the two products) 

(A )Schedule Showing the Apportionment of Indirect

 Distribution Overheads 

Items	Basis of Apportionment	Total (in Rs.)	Product A (in Rs.)	Product B (in Rs.)
Inventory Charges	Average Inventory Value ( 1000X30) : (60X 800) {30 :48}	7800	3000	4800
Storage Cost	Average Inventory and storage space (1000:400)	14000	10000	4000
Packing and Shipping Cost	Annual Sales (units) 10:8	72000	40000	32000
Salesmen’s salaries	Equal Proportion	85000	42500	42500
Commission	Annual Sales Value A 5% on 500000 B 5% on 800000	65000	25000	40000
Ordering entry and billing (25:20)	No. of invoices	45000	25000	20000
			145500	143300

(B) Comparative Statement of Profitability 

	Product A  (in Lakh Rs.)	Product B (in Lakh Rs.)
Annual Sales Value (A)	5 .00	8.00
Less Cost of Sales	3.00	4.80
Gross Profit	2.000	3.200
Less Indirect Distribution Overheads	1.455	1.433
Profit (B)	0.545	1.767
Profitability (B/A X 100)	10.9%	22.1%

2nd Example 

A  match factory sells its goods in four district zones - south, north, east and west. You have been given the following particulars in respect of each zone

Zone	Net Sales (In lakhs) (in Rs.)	No. of salesmen (in Rs.)	Average mileage covered	Advertising budget	Stock held at time (in lakhs)	Transportation charges
South	5.00	30	3000	25%	2.00	25%
North	13.50	50	4500	30%	5.00	50 %
East	3.50	20	2700	25%	1.50	15 %
West	3.00	25	2400	20%	1.50	10 %

The following are the expenses of the previous year:

Sales manager and his establishment ............Rs.124000
Travelling representatives salaries ................Rs. 72000
Travelling representatives travelling allowance Rs.24000
Advertising................................................. Rs.48000
Godown rent at out-station
south zone Rs. 15000 
north zone Rs. 21000
east zone Rs. 9600
west zone Rs. 7200
---------------------------
                  
............................................................Rs. 52800

Insurance on inventories at out stations ....Rs.24400
commission on the sales @ 2 and 1/2% .....Rs.62500
Transportation charges outward Rs. 6......... Rs.72000
---------------------------------------------------------------
........................................................479700
==================================

You are required to compute selling overhead rates as a percentage of sales on the basis of apportionment.

Particular	Basis of Apportionment	Total	Zones
			South	North	East	West
Sales managers and his establishment	Sales (10:27:7:6)	124000	24800	66960	17360	14880
Traveling representative salaries	No. of salesmen (6:10:4:5 )	72000	17280	28800	11520	14400
Travelling allowance	No. or salesmen X mileage	24000	5035	12587	3021	3357
Advertising	Budget rates (25:30:25:20)	48000	12000	14400	12000	9600
Godown rent at outstation	Direct	52800	15000	21000	9600	7200
Insurance on inventories	Value of stock (4:10:3:3)	24400	4880	12200	3660	3660
Commission on sales	2 and ½ on sales	62500	12500	33750	8750	7500
Transport charges (outward)	As given (5:10:3:2)	72000	18000	36000	10800	7200
		479700	109495	225697	76711	67797
			21.9%	16.72%	21.91%	22.60%

Related Resources 

1. Accounting Examples 
2. Cost Acccounting