Outlane Limited's overhead budget for a certain period is as follows: 000 Administration .................100 Depreciation of machinery

Outlane Limited's overhead budget for a certain period is as follows:

£000

Administration .................100

Depreciation of machinery ........... 80

Employer's national insurance ........... 10

Heating and lighting ............... 15

Holiday pay ................. 20

Indirect labour cost .............. 10

Insurance: machinery .............. 40

property ............... 11

c/f 286

£000

b/f 286

Machine maintenance .............. 42

Power .....................230

Rent and rates ................. 55

Supervision .................. 50

663

The company has four production departments: L, M, N and O. The following information relates to each department.

Previously, the company has absorbed overhead on the basis of 100 per cent of the direct labour cost. It has now decided to change to a separate machine-hour rate for each department.
The company has been involved in two main contracts during the period, the details of which are as follows:

Direct labour cost per hour in both departments was £3.00.

Required:
(a) Calculate the overhead to be absorbed by both contract 1 and contract 2 using the direct labour cost method.
(b) Calculate the overhead to be absorbed using a machine-hour rate for eachdepartment.

Transcribed Image Text:

Department Total number of employees Number of indirect workers Floor space (square metres) Kilowatt hours' power consumption Machine maintenance hours Machine running hours Capital cost of machines () Depreciation rate of machines (on cost) Cubic capacity 300 15 1500 200 10 1000 100 400 20 2000 1000 30000 50000 90000 60000 200 92000 38000 165000 27000 110000 40000 50000 200000 20% 60000 30000 10000 50000 500 400 300 20% 20% 20% Contract 2: Contract 1: abour hours and Department Dect labour hours and machine hours 60 30 10 machine hours 20 10 10 60 100 100