The makers of fruit salads prepared it budget for December 2019 period. The entity has three production departments and two service departments. The three production departments are milling, processing and packaging, and two service departments are stores and inspections.

The following budgeted overheads and budgeted activity levels have been produced:

Milling Processing Packaging Stores Inspections

Overhead cost $3,500,000 $2,800,000 $4,600,000 $1,300,000 $900,000

Machine hours 450,000 340,000 460,000

Overhead is absorbed on a machine hour basis.

It has been estimated that service department usage is as follows:

Milling Processing Packaging Stores Inspection

Stores 25% 35% 20% - 20%

Inspections 40% 20% 30% 10% -

During the period actual overheads in the production departments were milling, processing and packaging were $1,450,000, $1,950,000 and $3,500,000 respectively while, actual activity levels for all three were 250,000, 285,000 and 390,000 machine hours respectively.

Required:

1. Use the simultaneous equation method to derive the re-allocated overheads to production departments and derive the overhead absorption rates for these departments.

1. Calculate the over/under absorption of overheads in each department.