## Economic Order Quantity (EOQ) Practical Problems and Solutions

Problem No.1 The john equipment company estimates its carrying cost at 15% and its ordering cost at \$90 per order. The estimated annual requirement is 78,000 units at a price of \$4 per unit. Required: (i). What is the most economical no. of units to order? (ii). No. of orders to be placed in a … Read more

## Computation of Machine Hour Rate

What is Machine Hour Rate? Machine hour rate represents the hourly cost of factory overhead for operating a particular machine and is obtained by dividing the factory expenses connected with a machine for a given period by the number of hours worked by the machine during that period. The Institute of Cost and Management Accountants, … Read more

## Blanket Absorption Rate and Departmental Absorption Rate

Blanket Absorption Rate These terms are used in relation to the recovery or absorption of overhead. In ease, a common absorption rate for overhead is used throughout a factory and for all jobs and units of production irrespective of the department in which they were produced, it is termed as ‘blanket absorption rate‘. A common … Read more

## Methods of Factory Overhead Absorption

The common methods applied for absorbing factory overhead are as follows: (1) Units of Output Method: Under this method, absorption of factory overhead is made on the basis of the number of units manufactured. The overhead rate is obtained by dividing the amount of overhead expenses by the number of units of output. Thus: Formula … Read more

## Actual Overhead Rate and Pre-Determined Overhead Rate

Overhead rates setup for the absorption of overhead may be divided into two parts: (1). Actual Overhead Rate, (2). Pre-Determined Overhead Rate. Actual Overhead Rate Actual overhead rate is that which is based on the actual amount of overhead to be absorbed and the actual quantum or value of the base selected such as direct … Read more

## Under-Absorption and Over-Absorption of Overhead

What is Under-Absorption and Over-Absorption of Overhead? Where the absorption of overhead is made by a rate based on actual data, the overhead absorbed must be equal to the actual overhead incurred. But where a pre-determined rate is employed, there is generally a difference between the overhead absorbed and the overhead incurred. If the absorbed … Read more

## Memorandum Reconciliation Account

What is a Memorandum Reconciliation Account? Reconciliation of Cost and Financial Accounts may also be presented in the form of an account prepared on memorandum basis. Such an account is known as “Memorandum Reconciliation Account“. The amount of profit as per cost accounts is shown on the credit side of this account. The various items … Read more

## Reconciliation of Cost and Financial Accounts

Introduction of Reconciliation of Cost and Financial Accounts Cost accounts are maintained independent of financial accounts. These two accounts have different aims to fulfill. In the financial account, expenses are recorded in a subjective form, that is, according to their nature in a strict sense of the term. On the other hand, the cost accounts … Read more

## Normal and Abnormal Wastage

Normal Wastage (Loss) This means the usual percentage of wastage arising in its natural course in a process or operation. Such wastage is not avoidable as it occurs in its natural course. The normal wastage and loss due to it should be charged to the good units arising out of the process. In this way, … Read more

## Batch Costing

What is Batch Costing? – Definition Batch costing is nothing but a modified form of job costing in which cost is calculated of each batch of production. This method of costing is applicable in those manufacturing unit, where articles are manufactured in definite batches. This method is also known as ‘Lot Costing’ as products are … Read more