Tornado plc has estimated that the factory indirect cost costs for the next financial year will...

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Tornado plc has estimated that the factory indirect cost costs for the next financial year will be as follows: $ Indirect Wages 740 600 Repairs and Maintenance 112 500 Canteen 54 500 Insurance on Premises Insurance on Machines Heat and Light Sundries 40 000 36.000 22 400 6 000 The company wishes to calculate a suitable overhead absorption rate (OAR) for each of its two production departments. The following information is available: Production Departments Machining Assembly Service Departments Repairs Canteen Machine Cost (5) 450 000 Machine Hours 400 000 Direct Labour Hours 90 000 140 000 35.000 240.000 Broiler House 210 000 - 15 000 Floor Area (M) Number of 6.900 50 2 700 900 900 600 90 30 20 10 Employees Sundries (S) 3 005 2465 195 210 125 Proportion of work done by each service department: Repairs (%) Canteen (%) Broiler House (%) Machining Assembly Repairs Canteen Broiler House 60 30 10 30 50 15 S 90 10 - Actual results were as follows: Machining Assembly Indirect Cost (S) 533 100 434 00 Machine Hours 390 000 345 000 Direct Labour Hours 96 000 245 000 Required: a) Calculate an appropriate OAR for each production department, stating and using suitable bases for apportioning the factory indirect costs [18 marks] b) Calculate the amount of overhead that would be over or under absorbed by each department. [6 marks] c) Explain the significance of the results you have calculated in part (b) [6 marks] Tornado plc has estimated that the factory indirect cost costs for the next financial year will be as follows: $ Indirect Wages 740 600 Repairs and Maintenance 112 500 Canteen 54 500 Insurance on Premises Insurance on Machines Heat and Light Sundries 40 000 36.000 22 400 6 000 The company wishes to calculate a suitable overhead absorption rate (OAR) for each of its two production departments. The following information is available: Production Departments Machining Assembly Service Departments Repairs Canteen Machine Cost (5) 450 000 Machine Hours 400 000 Direct Labour Hours 90 000 140 000 35.000 240.000 Broiler House 210 000 - 15 000 Floor Area (M) Number of 6.900 50 2 700 900 900 600 90 30 20 10 Employees Sundries (S) 3 005 2465 195 210 125 Proportion of work done by each service department: Repairs (%) Canteen (%) Broiler House (%) Machining Assembly Repairs Canteen Broiler House 60 30 10 30 50 15 S 90 10 - Actual results were as follows: Machining Assembly Indirect Cost (S) 533 100 434 00 Machine Hours 390 000 345 000 Direct Labour Hours 96 000 245 000 Required: a) Calculate an appropriate OAR for each production department, stating and using suitable bases for apportioning the factory indirect costs [18 marks] b) Calculate the amount of overhead that would be over or under absorbed by each department. [6 marks] c) Explain the significance of the results you have calculated in part (b) [6 marks]