Three of the cost items that are included in the production overhead for a factory for a period are:

Machine maintenance labour	$33,600
Power	$26,000
Rent and rates	$39,800

Production overheads are currently absorbed using a single factory-wide rate.

It has been suggested that a separate overhead absorption rate should be calculated for each of the three groups of machines in the factory. The following additional budgeted data has been collected for the period:

	Machine Group			Total
	MG1	MG2	MG3
Floor area (m2)	1,600	1,400	1,000	4,000
Machine values ( 000)	320	250	230	800
Kilowatt hours ('000)	220	110	110	440
Machine maintenance (labour  hours)	600	400	600	1,600
Number of indirect workers	4	4	2	10
Machine hours	8,200	5,600	4,900	18,700

Required

(b)   Briefly explain one reason why a separate overhead absorption rate for each machine group would be preferable to a single factory-wide rate.

(c)    Apportion each of the three items of budgeted overhead cost (machine maintenance labour, power and rent and rates) to the three machine groups.

The totals of all budgeted  production overhead cost items, allocated and apportioned to the three machine groups, are as follows:

MG1	$129,560
MG2	$107,520
MG3	$119,070

 Required

(c)    Calculate an appropriate absorption rate for each machine group.

(d)   Calculate the production overhead that would be charged to job 121which requires five hours on MG1 machines two hours on MG2 machines and three hours on MG3 machines.

Posted Date: 2/26/2013 7:09:32 AM | Location : United States

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