14. Royalties and Patent Fees: When royalties are paid for – ACTG – 360

14. Royalties and Patent Fees: When royalties are paid for the right of use of patent process or component in the course of manufacturing, it is treated as production cost. On the other hand, if it is paid for use of right to sell, it is treated as selling overheads. When it is partially for production and partially for sale, the amount is apportioned between production and selling costs. 15. Director’s Fees and Salaries: This is part of administration overheads. However sometimes, this is apportioned between administration and selling and distribution overheads on the basis of time devoted. 16. Market Research: Market Research is an item of selling overhead as it is incurred for conducting study of market conditions and ascertainment of market potentiality. Cost of market research is apportioned to all the products produced by the rm if it is conducted for the entire organization. On the other hand, if it is incurred for a particular product, it may be treated as a direct charge for that product. 17. Bad Debts: Bad Debt is a selling overhead and included in the same. However abnormal bad debts are excluded from cost accounts. 18. Advertising Cost: Advertising expenditure incurred for a speci c product is charged to that product. Cost of general advertisement is apportioned to different products on the basis of sales value. If the amount is heavy, the expenses may be treated as deferred revenue expenditure and can be charged in three or four years. Cost and Management Accounting 102 Illustrations I. Primary and Secondary Distribution Summary 1. A company has three production departments A, B and C and two service departments, X and Y. The following data are extracted from the records of the company for a particular period. Sr. No. Particulars Amount ( Rs.) 01 Rent and Taxes 25,000 02 General lighting 3,000 03 Indirect Wages 7,500 04 Power 7,500 05 Depreciation of Machinery 50,000 06 Sundries 50,000 Additional Data Particulars Total Dept. A Dept. B Dept. C Dept. X Dept. Y Direct Wages (Rs.) 50,000 15,000 10,000 15,000 7,500 2,500 Horsepower of Machines 150 60 30 50 10 Cost of Machinery (Rs.) 12,50,000 3,00,000 4,00,000 5,00,000 25,000 25,000 Production hrs worked 6226 4028 4066 Floor space (sq.mtrs) 10,000 2,000 2,500 3,000 2,000 500 Lighting points ( Nos.) 60 10 15 20 10 05 Service Departments’ Expenses Allocation :-Department A B C X Y X (%) 20 30 40 10 Y (%) 40 30 20 10 You are required to, A. Prepare primary and secondary distribution summary according to repeated distribution System. Overheads 103 Solution : Primary Distribution Summary Items Basis of Apportionment Total Dept A Dept B Dept C Dept X Dept Y Direct Wages Actual ( Only for service depts.) 10,000 7,500 2,500 Rent and Taxes Floor Space 25,000 5,000 6,250 7,500 5,000 1,250 General Lighting Light Points 3,000 500 750 1,000 500 250 Indirect Wages Direct Wages 7,500 2,250 1,500 2,250 1,125 375 Power Horse Power 7,500 3,000 1,500 2,500 500—Depreciation… Type your question here! Please include all relevant details, attachments, and requirements so your tutor can provide a complete answer. Source.