Mwanamaida Ltd, a company located in Lusaka light industrial area, manufactures plastic containers for the pharmaceutical and cosmetic industries. The plant, in which the company undertakes all of its production, has two production departments – ‘Cutting’ and ‘Shaping’, and two service departments – ‘Stores’ and ‘Maintenance’.

The information provided below has been extracted from the company’s budget for the next financial year which ends on 31st December 2019.

Allocated Production Overhead Costs K

Cutting department 140,000

Shaping department 160,000

Stores department 35,000

Maintenance department 28,000

Apportioned Production Overheads K

Factory rent 525,000

Factory building insurance 70,000

Plant & machinery insurance 39,000

Plant & machinery depreciation 58,500

Canteen subsidy 150,000

The following additional information is also provided:

Cutting Shaping Stores Maintenance

Dept Dept Dept Dept

Floor area (square metres) 18,000 12,000 3,000 2,000

Value of plant & machinery (K) 300,000 50,000 25,000 15,000

Number of stores requisitions 1,000 500

Maintenance hours required 2,700 2,000 300

Number of employees 34 60 4 2

Machine hours 12,000 2,000

Labour hours 9,000 15,000

Required:

(a) Prepare an overhead analysis sheet based on the above information, clearly state the basis used for any apportionments. (12 marks)

(b) Re-apportion the service department costs and calculate the most appropriate overhead rate for each department (rate should be calculated to two decimal places (5 marks)

(c) During the year ended 31 December 2019 the following hours were actually worked and the following actual incurred:

Department Labour hours Machine hours Overhead costs Incurred

Cutting 8,000 14,000 K531,500

Shaping 16,000 3,000 K405,500

Calculate the over/under absorbed overhead for each of the two department for the year ended 31st December 2019.