Budgeted information relating to two departments of Rydons Tables Ltd for the next period is as follows:

Individual direct labour employees within each department earn differing rates of pay according to their skills, grade and experience.

Required

(a). Rydons Tables intends to use a production overhead cost rate of £6 per machine hour for absorbing production overhead cost into jobs, based on the budget. Write a short note to the managers of the business commenting on this proposal.

(b). During the past year, Rydons Tables has been using a production overhead cost rate of £5.60 per machine hour. During the year overheads of £275,000 were incurred and 48,000 machine hours worked. Were overheads under-absorbed or over-absorbed, and by how much?

Transcribed Image Text:

Department Production Direct Direct Direct Machine overhead material labour labour hours cost cost hours 270,000 18,000 2,700 25,000 45,000 67,500 36,000 13,500 100,000 2 300