Prepare an overhead analysis sheet, Managerial Accounting

QUESTION 1:

PART A

You are the Cost Accountant of an industrial concern and have been assigned the duty of preparing a cost accounting system. Initially it has been decided to prepare three production cost centers and two service cost centers.

The subsequent data relating to the next accounting period have been estimated as follows:

                                      Production Cost Centres          Service Cost Centres              Total

 

Milling

Assembly

 

Spraying

Stores

Maintenance

 

 

 

No. of employees

 

 

30

 

 

75

 

 

 

25

 

 

6

 

 

14

 

 

150

 

Labour hours

 

1,510

 

3,320

 

 

950

 

252

 

595

 

6,627

 

Plant & Machines values

 

225,000

 

75,000

 

 

45,000

 

17,000

 

85,000

 

447,000

 

Area (m2)

 

7,500

 

10,000

 

 

3,500

 

500

 

1,000

 

22,500

 

Material requisitions

 

1,400

 

300

 

 

250

 

 

550

 

2,500

 

Maintenance hours (minor works)

 

 

75

 

 

30

 

 

 

45

 

 

 

 

150

 

KWH ('000)

 

300

 

70

 

 

50

 

10

 

170

 

600

 

Machine hours

 

8,400

 

1,100

 

 

300

 

 

 

9,800

During the period the following data were recorded

 

Milling

Assembly

Spraying

Stores

Maintenance

Total

Indirect materials

Indirect labour

Maintenance works

2,500

 

5,250

18,500

1,000

 

2,500

7,500

1,500

 

2,250

4,500

300

 

4,250

1,700

 

11,750

7,000

 

26,000

30,500

The following details were obtained from the accounts relating to the period:

Fire Insurance

1,250

Power

4,500

Heating and Lighting

2,000

Rates

1,800

Machine depreciation

8,400

Machine Insurance

850

Canteen deficit

4,250

Balance of maintenance costs (excl. major works)

17,500

Required:

(a) Prepare an overhead analysis sheet showing how overhead costs should be apportioned between the departments.

(b) Determine suitable overhead absorption rates for the Milling, Spraying and Assembly departments, stating clearly the overhead absorption basis used.

PART B

The daughter of the managing director of ABC Ltd is attending a university degree course in accounting and finance. In the mean while a telephone call to his daughter the managing director asked her to enquire from her lecturers which of the following is correct when considering allocation, apportionment and reapportionment of overheads in an absorption costing situation:

- Only production related costs should be considered.

- Allocation is the situation where part of an overhead is assigned to a cost centre.

- Costs may only be reapportioned from production centres to service centres.

- Any overheads assigned to a single department should be ignored

Required:

Briefly Explain what should be the advice of the lecturers to the Managing Director's daughter.

PART C

Activity Based Costing is a costing model which examines the problem that has faced accountants and accounting technicians for decades - that of the allocation and  absorption  of  overhead.  As  such  Activity  Based  Costing  or  ABC  offers  a workable and more effective insight into overhead

Required:

Briefly describe on three uses and three limitations to the Activity Based Costing system.

Posted Date: 10/17/2013 4:16:30 AM | Location : United States







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