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

 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
Godown rent at out-station
south zone Rs. 15000
north zone Rs. 21000
east zone Rs. 9600
west zone Rs. 7200
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............................................................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
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........................................................479700
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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%

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