QUESTION $1(20$ Marks$)$

A Cape Town$-$based manufacturing firm, CGH Manufacturing Enterprises $($CGHME$),$ has three production departments

$($A$,$ B and C$)$ and the two service departments $($X and Y$).$ As part of the budgeting process, a senior cost accountant

employed by CGHME has gathered the following annual overhead costs:

R

Indirect materials:

Production department A $250000$

Production department B $402500$

Production department C $52500$

Service department X $10000$

Service department Y $50000$

Indirect labour:

Production department A $500000$

Production department B $500000$

Production department C $750000$

Service department X $550000$

Service department Y $740000$

Heating and lighting $350000$

Property tax $400000$

Insurance of machinery $180000$

Depreciation of machinery $960000$

Insurance of buildings $145000$

Salaries of works management $4600000$

The following information is also available:

Carrying value of

machinery, R

Floor area

occupied $($m$2)$

Number of

employees

Machine hours

Production department A $400000050001501000000$

Production department B $25000002500100800000$

Production department C $5000007500150850000$

Service department X $250000750050$

Service department Y $250000250050$

$750000025000500$

As an accounting intern in the office of the senior cost accountant, you have been asked to prepare an overhead allocation

statement $($using traditional costing$).$ You have been asked to use the repeated distribution method to prepare the

secondary allocation of the overheads of the two service departments $($X and Y$)$ to the three production departments $($A$,$

B and C$)$ according to the following percentages:

Secondary allocation: A B C X Y

Percentage of service department X to $204030-10$

Percentage of service department Y to $40202020-$

The three production departments $($A$,$ B and C$)$ absorb overheads on machine hour basis.

REQUIRED:

$1\mathrm{.}1.$ Complete the primary allocation statement below. $(7$ marks$)$

Basis Total PD A PD B PD C SD X SD Y

Primary allocations:

Indirect materials Given $765000250000402500525001000050000$

Indirect labour Given $3040000500000500000750000550000740000$

Heating and lighting Floor Area $350000??105000105000?$

Property tax Floor Area $4000008000040000???$

Insurance of machinery Mach. value $180000?600001200060006000$

Dep. of machinery Mach. value $960000512000??3200032000$

Insurance of buildings Floor Area $145000??435004350014500$

Salaries of works

management

No$.$ of

employ $46000001380000???460000$

Total primary allocations $1044000029170002292000252700013265001377500$

$1\mathrm{.}2.$ Complete the secondary allocation statement below $($where applicable, round of figures to two decimal places$).(6$

marks$)$

Production departments Service departments

A B C X Y

Total primary allocation, R $29170002292000252700013265001377500$

Service department X $?????$

Service department Y $?????$

Service department X $?????$

Service department Y $?????$

Service department X $?????$

Service department Y $?????$

Service department X $?????$

Service department Y $?????$

Service department X $?????$

Service department Y $?????$

Total allocated overhead $???--$

$1\mathrm{.}3.$ Calculate the predetermined overhead absorption rates for the three production departments $($A$,$ B and C$)$ of CGH

Manufacturing Enterprises for the forthcoming quarter $($round off answers to two decimal places$).(3$ marks$)$

$1\mathrm{.}4.$ By citing the management accounting literature, state four $(4)$ advantages of predetermined overhead rate. $(4$ marks$)$