Calculate the overheads absorbed in the period

Assignment Help Financial Accounting

Reference no: EM133565592

Question 1: Financial Accounting- Lease

On 1 July 2015, Slinky Ltd leased a tyre-making machine from Bill Ltd. The machine cost Bill Ltd $130,000 to manufacture and had a fair value of $154,109 on 1 July 2015. The lease agreement contained the following provisions:

Lease term 4 years
Annual payment, payable in advance on 1 July each year $41,500
Residual value at end of the lease term $15,000
Residual guaranteed by lessee nil
Interest rate implicit in the lease 8%

The lease is cancellable only with the permission of the lessor.

The expected useful life of the machine is 6 years. Blinky Ltd intends to return the machine to the lessor at the end of the lease term. The annual payment includes an amount of $1500 per annum to cover the costs of maintenance and insurance paid by the lessor on behalf of the lessee.

Required:
(i) Calculate the present value of the minimum lease payments (PVMLP).
(ii) Classify the lease for the lessee. Justify your answer.
(iii) Prepare the lease payment schedule for the lessee, Blinky Ltd (show all workings). CO Prepare all the journal entries to account for the lease transactions in the books of the lessee, Blinky Ltd for the financial year ended 30 June 2016. Do not do journal entries for 2017 or 2018.

Question 2: Management Accounting

A company produces several products which pass through the two production departments in its factory. These two departments are concerned with filling and sealing operations. There are two service departments, maintenance and canteen, in the factory.

Predetermined overhead absorption rates, based on direct labour hours, are established for the two production departments. The budgeted expenditure for these departments for the period just ended, including the apportionment of service department overheads, was £110,040 for filling, and £53,300 for sealing. Budgeted direct labour hours were 13,100 for filling and 10,250 for sealing.

Service department overheads are apportioned as follows:

	Filling	70%
Maintenance	Sealing	27%
Maintenance	Canteen	3%
Canteen	Filing	60%
Canteen	Sealing	32%
Canteen	Maintenance	8%

During the period just ended, actual overhead costs and activity were as follows:

	(£)	Direct labour hours
Filling	74260	12 820
!Sealing	38115	10 075
Maintenance	25050
Canteen 24375

Required:
Calculate the overheads absorbed in the period and the extent of the under/over absorption in each of the two production departments.

Reference no: EM133565592

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