Mwangaza Metals Ltd. Fabricates steel products for export to the COMESA region. The products go through three processing departments: forming, machining and finishing.

The following information relates to operations for the year ended 31 October 2010.

Budget manufacturing costs for the year ended 31 October 2010 were as follows

Departments

Forming

Machining

Finishing

Total

Sh.

Sh.

Sh.

Sh.

'000'

'000'

'000'

'000'

Direct materials

340,000

Direct labour

80,000

40,000

120,000

240,000

Manufacturing overheads

20,000

80,000

60,000

160,000

The actual manufacturing costs incurred for the year ended 31 October

Departments

Forming

Machining

Finishing

Total

'000'

'000'

'000'

'000'

Direct materials

360,000

Direct labour

88,000

38,000

144,000

270,000

Manufacturing overheads

24,000

72,000

78,000

174,000

While there were no finished goods or work-in-progress inventories at the beginning of the year, stocks on 31 October 2010 were made up as follows:

Finished goods

ksh.121,000,000

The above balances include actual direct materials, direct labour and absorbed overhead costs.

Manufacturing overhead costs are absorbed into products on the basis of direct labour costs, at rates pre-determined at beginning of the year, using the annual budgeted data.

Two alternatives of absorbing overheads could be employed:

Use a single factory wide manufacturing overhead rate.

Use separate departmental manufacturing overhead rates.

The policy of the company is to dispose of over (under) absorbed overheads at the year-end by allocating the amount between ending inventories and cost of goods sold in proportion to their unadjusted cost balances.

Required:

Using the separate departmental manufacturing overhead rates:

Determine the total under/over absorbed overheads for the year.

Allocate the over/under absorbed overheads to the relevant accounts.

Prepare a journal entry to record the disposal of the over/under absorbed overheads.

A particular order code named E20, from a customer was worked on and completed during the year. The following costs were incurred in relation to the order.

Ksh.

Ksh.

Direct materials

3,000,000

Direct labour:

Forming

400,000

Machining

380,000

Finishing

480,000

1,260,000

Required:

Using the factory wide absorption rate, determine total overhead applied to the order (E20).

Answer rating: 100% (QA)

Determining departmental manufacturing overhead rates Forming department Budgeted overhead Sh 20000000 Budgeted direct labour Sh 80000000 Overhead app... View the full answer