Calculate the overhead absorption rates, Finance Basics

A manufacturing organisation has three production cost centres, the cutting department, the processing department and the finishing department, and two service cost centres, the stores and the canteen.

Budgeted information for the following 6 month period is available as follows:

                                                                        £

Direct materials                                           155,200

Direct labour                  

          Cutting                           15,000

          Processing                      35,000

          Finishing                         10,000

          Canteen                          6,240           66,240       

Indirect materials

Cutting                           25,500

Processing                      10,200

Finishing                           7,300

Stores                                        3,000

Canteen                            2,200         48,200

Indirect labour

Cutting                             4,200

Processing                      10,500

Finishing                           3,000

Stores                                      12,800

Canteen                            4,500       35,000

Rent                                                            12,000

Supervisor's wages                                        12,000

Machinery insurance                                       3,300

Maintenance expenses                                   5,400

The following information is also provided:

 

Total

Cutting

Process'g

Finish'g

Stores

Canteen

Direct labour hours

8,600

2,730

4,550

1,320

-

-

Direct machine hours

11,100

6,500

1,900

2,700

-

-

Floor area

(sq m)

50,000

20,000

18,000

8,000

2,000

2,000

Maintenance hours

 

1,100

400

400

100

100

100

Materials requisitions

1,800

1,200

300

300

-

-

Number of employees

90

20

35

20

5

10

Supervisor's time in each department (hours)

 

960

 

480

 

360

 

90

 

30

 

0

Value of machinery

£150,000

£60,000

£50,000

£30,000

£5,000

£5,000

You are required to:

  1. Create an overhead schedule to show the allocation/ apportionment of the overheads to each of the production and service cost centres.  Show all figures to the nearest whole £.
  2. Reapportion the service cost centre costs to the production cost centres, again showing all figures to the nearest whole £.
  3. Having collected all of the overheads in the production cost centres, calculate the overhead absorption rates for each cost centre, to two decimal places.
  4. Explain how these absorption rates will be used to charge the overheads into production and what adjustments may be required once the actual overhead figures are available.
Posted Date: 3/14/2013 5:12:54 AM | Location : United States







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