Bank Limited has several production departments. In the assembly department it has been estimated that £250,000 of overhead should be charged to that particular department. It now wants to charge a customer for a specific order. The relevant data are: 

The accountant is not sure which overhead absorption rate to adopt. 

Required:

Calculate the overhead to be absorbed by a specific unit passing through the assembly department using each of the following overhead absorption rate methods:

(a) Specific units
(b) Percentage of direct material cost
(c) Percentage of direct labour cost
(d) Percentage of prime cost
(e) Direct labour hours
(f) Machine hours.

Transcribed Image Text:

Number of units Direct material cost (£) Direct labour cost (£) Prime cost (£) Direct labour hours Machine hours Assembly department 50 000 500 000 1 000 000 1 530 000 100 000 25 000 Specific unit 8.00 30.00 40.00 3.5 0.75