A manufacturing company has two production cost centres (Department A & B) and one service cost centre
Question:
A manufacturing company has two production cost centres (Department A & B) and one service cost centre (Department C) in its factory. A predetermined overhead absorption rate (to two decimal places$) is established for each of the production cost centre on the basis of budgeted overheads and budgeted machine hours.
The overheads of each production cost centre comprise directly allocated costs and a share of the costs of the service cost centre. Budget production overhead data for a period is as follows:
Department A Department B Department C
Allocated Cost $217,860.00 $374,450.00 $103,970.00
Apportioned Costs $45,150.00 $58,820.00 ($103,970.00)
Machine Hours $13,730.00 $16,110.00 Nil
Direct Labour Hours $16,360.00 $27,390.00 Nil
Actual production overhead costs and activity for the same period are?
Department A Department B Department C
Allocated Costs $219,917.00 $387,181.00 $103,254.00
Machine Hours $13,672.00 $16,953.00 Nil
Direct labour Hours $16,402.00 $27,568.00 Nil
70% of the actual costs Department C are to be apportioned to production cost centres on the basis of the actual machine hours worked and the remainder on the basis of actual direct labour hours
Required:
(A) Calculate the production overhead absorption rate for the period (8marks)
Determine the under or over absorption of production overhead for the period in each production cost centre.
Governmental and Nonprofit Accounting
ISBN: 978-0132751261
10th edition
Authors: Robert Freeman, Craig Shoulders, Gregory Allison, Robert Smi