Blue Bell Jacket Company Pty Ltd has provided the following information relating to the factory overhead budget
Question:
Blue Bell Jacket Company Pty Ltd has provided the following information relating to the factory overhead budget for the coming year:
Cost component | Fixed $ | Variable $ | Cost driver |
Supervision | 96,000 | ||
Insurance | 15,000 | ||
Depreciation | 9,000 | ||
Maintenance | 0.40 | Per machine hour | |
Power | 2.00 | Per machine hour | |
Cleaning | $1.00 | Per direct labour hour | |
Indirect materials | $1.50 | Per unit | |
Other variable overhead | $0.75 | Per unit |
NOTE: To make one unit it takes 30 minutes of machine time and 2 hours of direct labour.
Workings | ||
Normal | Expected | |
Units | 30,000 | 28,500 |
Machine hours | 15000 | 14250 |
Direct labour | 60000 | 57000 |
Blue Bell Jacket Company Pty Ltd | ||
Factory overhead Budget | ||
Normal | Expected | |
Production Units | 30,000 | 28,500 |
Cost Component | ||
Fixed: | ||
Supervison | $ 96,000 | $ 96,000 |
Insurance | $ 15,000 | $ 15,000 |
Depreciation | $ 9,000 | $ 9,000 |
Total Fixed Costs | $ 120,000 | $ 120,000 |
Variable: | ||
Maintenance | $ 6,000 | $ 5,700 |
Power | $ 30,000 | $ 28,500 |
Cleaning | $ 60,000 | $ 57,000 |
Indirect materials | $ 45,000 | $ 42,750 |
Other variable overhead | $ 22,500 | $ 21,375 |
Total Variable Costs | $ 163,500 | $ 155,325 |
Total Factory Overhead Costs | $ 283,500 | $ 275,325 |
Overhead Rate | $ 18.90 | $ 19.32 |
Driver: | MH | MH |
It has been decided to apply overheads to production using direct labour hours.
Prepare a structured report to management showing:
- an explanation to management on the factors causing the change in the factory overhead application rates and the effect of choosing the incorrect rates on sales price, profitability and inventory valuation.
Document your report using the template provided below.
Introduction:
(Provide an overview of the purpose of the report)
Body:
(Provide an overview of the procedure that was utilised for evaluation, key stakeholders engaged in the reporting, etc.)
Conclusion and recommendations:
(Provide an overview of the results of the evaluation and any recommendations.)
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton