Three of the cost items that are included in the production overhead for a factory for a period are:
Machine maintenance labour
Rent and rates
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:
Floor area (m2)
Machine values (
Kilowatt hours ('000)
Machine maintenance (labour hours)
Number of indirect workers
(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:
(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.