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

Vindhya Engineering has two production departments, A and B, and two service departments, X and Y. Primary overheads: A Rs 1,50,000, B Rs 1,00,000, X Rs 40,000, Y Rs 30,000. X's cost is shared A 40%, B 40%, Y 20%. Y's cost is shared A 50%, B 30%, X 20%. Using the repeated distribution (reciprocal) method solved by simultaneous equations, what is the total overhead of A after secondary distribution?

Solving the simultaneous equations gives the total for A of about Rs 1,88,958, so the stated options do not fit.

  1. ARs 1,97,000Correct
  2. BRs 2,00,000
  3. CRs 1,90,000
  4. DRs 1,95,000

Explanation

Let X = 40,000 + 0.2Y and Y = 30,000 + 0.2X. Then X = 40,000 + 6,000 + 0.04X, so 0.96X = 46,000 and X = 47,916.67; Y = 30,000 + 9,583.33 = 39,583.33. A gets 0.4X = 19,166.67 and 0.5Y = 19,791.67, total 38,958.33. Then A = 1,50,000 + 38,958 = about Rs 1,88,958. Rechecking the options: none matches this, so recompute with the stated figures...

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