Makers Ltd is a manufacturing company that has three production departments known as Department A
SuperClassMakers Ltd is a manufacturing company that has three production departments known as Department A, B and C. The production overhead is absorbed on the basis of a percentaMakers Ltd is a manufacturing company that has three production departments known as Department A, B and C. The production overhead is absorbed on the basis of a percentage of direct labour cost for the factory as a whole. It has been suggested that a departmental overhead absorption rate would result in more accurate job costs.
Below are the budgeted and actual data for the year ended 31’ October, 2008.
Direct wages | Direct labour hours | Machine hours | Production overheads | ||
Budgeted costs: | |||||
Department A | 25,000 | 10,000 | 40,000 | 120,000 | |
Department B | 100,000 | 50,000 | 10,000 | 30,000 | |
Department C | 25,000 | 25,000 | - | 75,000 | |
Total | 150,000 | 85,000 | 50,000 | 225,000 | |
Actual costs:
| |||||
Department A | 30,000 | 12,000. | 45,000 | 130,000 | |
Department B | 80,000 | 45,000 | 14,000 | 28,000 | |
Department C | 30,000 | 30,000 | - ____ | 80,000 | |
Total | 140,000 | 87,000 | 59,000 | 238,000 | |
During the period job no. 567 was completed and actual costs and actual hours of the job incurred in each department are shown below:
Direct materials | Direct wages | Direct labour hours | Machine hours | |
Department A | 120 | 100 | 20 | 40 |
Required:
a) Calculate the overhead absorption rate currently in use.
[5 mark]
b) Calculate the departmental overhead absorption rate for each department using
the following basis:
Department A - machine hours
Department B - direct labour hours
Department C - direct wages
[6 marks]
c) Using the overhead absorption rates calculated in part (b) above, determine the
total cost for job no. 567 and its selling price if a profit margin is to be maintained
at 20% of the selling price.
[10 marks]
d) Show the over/under absorption of production overheads for each department
using:
i the OAR calculated in part (a) above
ii. the OAR calculated in part (b) above
[10 marks]
e) Discuss the treatment of over or under absorption production overheads.
[6 marks]ge of direct labour cost for
11 years ago
