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CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method

Anand Forge has two service departments, S1 and S2, and two production departments, P1 and P2. Primary costs: S1 ₹40,000, S2 ₹30,000. S1 is shared S2 20%, P1 40%, P2 40%. S2 is shared S1 10%, P1 50%, P2 40%. Using the simultaneous equation (repeated distribution equivalent) method, what is the total S1 cost to be distributed?

The total S1 cost is about ₹43,878, found by solving S1 = 40,000 + 0.1 S2 and S2 = 30,000 + 0.2 S1 simultaneously.

  1. A₹40,000
  2. B₹43,000
  3. C₹44,898Correct
  4. D₹45,918

Explanation

Let S1 = 40,000 + 0.10 S2 and S2 = 30,000 + 0.20 S1. Substituting: S1 = 40,000 + 3,000 + 0.02 S1, so 0.98 S1 = 43,000 and S1 = ₹43,877.55. Checking: S2 = 30,000 + 8,775.51 = 38,775.51; 40,000 + 3,877.55 = 43,877.55. This matches ₹43,878, which is not among the options as printed.

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