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Magal Murthi Case Study

- Mangal Murti Plastics Limited uses a two-stage cost allocation system to allocate factory overheads to production departments A and B, and then to individual products (Regular and Deluxe). - In September 2020, total factory overhead was Rs. 10 lakhs. Department A had 40,000 machine-hours and 20,000 direct labor-hours, while Department B had 160,000 machine-hours and 10,000 direct labor-hours. - Department A's overhead absorption rate was Rs. 10/labor-hour. Department B's was Rs. 80/labor-hour. This information is used to calculate the total cost of the Regular and Deluxe products.

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431 views3 pages

Magal Murthi Case Study

- Mangal Murti Plastics Limited uses a two-stage cost allocation system to allocate factory overheads to production departments A and B, and then to individual products (Regular and Deluxe). - In September 2020, total factory overhead was Rs. 10 lakhs. Department A had 40,000 machine-hours and 20,000 direct labor-hours, while Department B had 160,000 machine-hours and 10,000 direct labor-hours. - Department A's overhead absorption rate was Rs. 10/labor-hour. Department B's was Rs. 80/labor-hour. This information is used to calculate the total cost of the Regular and Deluxe products.

Uploaded by

rajesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Question 2: Mangal Murti Plastics Limited is currently using a

traditional two-stage cost allocation system. In the first stage, all factory-
overheads are allocated to two production departments, A and B, based on
machine hours; while the second stage uses direct labor hours for
absorption of these overheads to individual products – Regular and Deluxe.

During September 2020, Mangal Murti Plastics Limited had a total factory
overhead cost of Rs. 10 lakhs. The number of machine-hours used in the
Production Departments A and B were 40,000 and 1,60,000 respectively.
The number of direct labor-hours in Production Departments A and B were
20,000 and 10,000 respectively.

The following information relates to products deluxe and regular for the
month of September 2020:

Stage #1 Allocation: (Based on Machine Hours)

(Rs. in lakhs)

Total Factory Overheads during September 2020 Rs. 10.00

Total Overheads Allocated to Production Dept–A (Rs. 10(4/20)) Rs. 2.00

Total Overheads Allocated to Production Dept–B (Rs. 10(16/20)) Rs. 8.00

Stage #2 Allocation: (Rs. in lakhs)

Total Overheads Allocated to Production Department – A Rs. 2.00

Labor-Hours in Department A during September 2020 20,000 hours.

Therefore, Labor-Hour Absorption Rate of Department A is (Rs. 2


lakhs/20,000 hours) = Rs. 10.

Total Overheads Allocated to Production Department – B Rs. 8.00


Labor-Hours in Department B during September 2015 10,000 hours.

Therefore, Labor-Hour Absorption Rate of Department B is (Rs. 8


lakhs/10,000 hours) = Rs. 80.

Cost Sheet for the month of September 2020

Particulars Deluxe Regular

Units Produced and Sold 2,000 8,000

Total (Rs. Per Unit Total (Rs. Per Unit


in lakhs) (Rs.) in lakhs) (Rs.)

Direct Material Cost Rs.2.00 Rs. 100.00 Rs. 4.00 Rs. 50.00

Direct Labor Cost Rs. 1.50 Rs. 75.00 Rs. 4.80 Rs. 60.00

PRIME COST Rs. 3.50 Rs. 175.00 Rs. 8.80 Rs. 110.00

Factory Overheads:

Department – A (Absorption Rs. 0.40 Rs. 20.00 Rs. 1.60 Rs. 20.00
rate @ Rs. 10 per labor hour)

Department – B (Absorption Rs. 1.60 Rs. 80.00 Rs. 6.40 Rs. 80.00
rate @ Rs. 80 per labor hou
r)

TOTAL COST Rs. 5.50 Rs. 275.00 Rs. 16.80 Rs. 210.00

Profit Rs. 1.00 Rs. 50.00 Rs. 1.20 Rs. 15.00

SALES Rs. 6.50 Rs. 325.00 Rs. 18.00 Rs. 225.00

Other information collected for the month of September 2020:

 Break-up of Factory Overheads

(Rs. in lakhs)

o Material Receipt and Movement Costs Rs. 0.70

o Production Setup Cost Rs. 6.00


o Inspection and Quality Check cost Rs. 3.00

o Shipment Cost Rs. 0.30

Total Factory Overheads for September, 2020 Rs. 10.00

 Some non-financial information collected for the month of


September 2020:

Particulars Deluxe Regular

(a) Number of Shipments 50 100

(b) Number of Material Receipts 150 200

(c) No. of Inspecting and Quality Check staff


4 6
deputed

(d) Number of Production and Machine Setups 25 50

(e) Number of Units produced 2,000 8,000

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