Outlane Limited’s overhead budget for a certain period is as

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.


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


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:

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


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.

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