Don Engineering Limited produces front and rear fenders for a motorcycle manufacturer. It has three production...
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Don Engineering Limited produces front and rear fenders for a motorcycle manufacturer. It has three production departments and two service departments. Overheads are allocated on the basis of direct labour hours. The management is considering changing the basis of overhead allocation from a single overhead absorption rate to departmental overhead rate. The estimated annual overheads for the five departments are as follows:- Direct materials Direct labor cost Indirect material Other variable overheads Fixed overheads Total departmental expenses Production Departments Fabrication Phosphate Painting $000 $000 $000 13,500 600 1,500 2,400 770 960 0 400 960 17.260 Maximum production capacity 40,000units Direct labour hours 48,000 0 140 130 1,640 0 200 230 2,890 50,000units 60,000units 19,200 24,000 Inspection Maintenance $000 $000 0 0 0 60 60 300 Service 420 0 150 30 420 600 Machine hours Use of service departments: Maintenance - Labor hours Inspection - Inspection hours 18,000 0 1,260 2,000 2,000 0 546 1,000 2,400 0 294 3,000 REQUIRED: a) Indicate the single overhead absorption rate for the next year. (5 marks) b) Indicate the departmental overhead absorption rates in accordance with the following: i) The Maintenance Department costs are allocated to the production department on the basis of labour hours. ii) The Inspection Department costs are allocated on the basis of inspection hours. iii) The Fabrication Department overhead absorption rate is based on machine hours. iv) Overhead rates for Phosphate and Painting Departments is based on direct labour hours. (20 marks) Don Engineering Limited produces front and rear fenders for a motorcycle manufacturer. It has three production departments and two service departments. Overheads are allocated on the basis of direct labour hours. The management is considering changing the basis of overhead allocation from a single overhead absorption rate to departmental overhead rate. The estimated annual overheads for the five departments are as follows:- Direct materials Direct labor cost Indirect material Other variable overheads Fixed overheads Total departmental expenses Production Departments Fabrication Phosphate Painting $000 $000 $000 13,500 600 1,500 2,400 770 960 0 400 960 17.260 Maximum production capacity 40,000units Direct labour hours 48,000 0 140 130 1,640 0 200 230 2,890 50,000units 60,000units 19,200 24,000 Inspection Maintenance $000 $000 0 0 0 60 60 300 Service 420 0 150 30 420 600 Machine hours Use of service departments: Maintenance - Labor hours Inspection - Inspection hours 18,000 0 1,260 2,000 2,000 0 546 1,000 2,400 0 294 3,000 REQUIRED: a) Indicate the single overhead absorption rate for the next year. (5 marks) b) Indicate the departmental overhead absorption rates in accordance with the following: i) The Maintenance Department costs are allocated to the production department on the basis of labour hours. ii) The Inspection Department costs are allocated on the basis of inspection hours. iii) The Fabrication Department overhead absorption rate is based on machine hours. iv) Overhead rates for Phosphate and Painting Departments is based on direct labour hours. (20 marks)
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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