Question $3(35$ marks$)$

Below are the actual overhead and actual activities for the three $(3)$ production departments at

General$$s Ltd for the year ended December $2023.$

A B C

Indirect Labour $$2,250,000$ $$300,000$ $$450,000$

Indirect Materials $$750,000$ $$450,000$ $$1,050,000$

Other Expenses $$1,500,000$ $$2,250,000$ $$1,875,000$

Machine hours $150,000300,000450,000$

Labour hours $750,000150,000375,000$

Prior to the end of the period, the production manager provided the following budgeted

information for each of the departments. The entity also has two service departments: Stores and

Maintenance. The following immediately below are the budgeted data for the same period:

A B C Maintenance Stores

Indirect Labour $$1,500,000$ $$1,125,000$ $$1,875,000$ $$600,000$ $$750,000$

Indirect Materials $$450,000$ $$375,000$ $$1,125,000$ $$900,000$ $$1,050,000$

Other Expenses $$1,800,00$ $$1,500,000$ $$750,000$ $$300,000$ $$1,200,000$

Labour hours $900,000120,000300,000$

Machine hours $150,000225,000375,000$

Overhead is absorbed based on how intensive the individual departments are considered. It

has been estimated that service department usage is as follows:

A B C Maintenance Stores

Maintenance $20\%40\%20\%-20\%$

Stores $50\%20\%20\%10\%-$

Required:

a$.$ Prepare a schedule to apportion the notional service cost to production and the total

overheads for the production departments after apportionment. Hint: use simultaneous

equations to derive the notional values. $[14$ marks$]$

b$.$ Calculate the overhead absorbed in each department $[12$ marks$]$

c$.$ Calculate the under$/$over absorbed overheads for each department and the entity in total

$[7$ marks$]$

d$.$ What are the two main factors that give rise to over$/$under absorption of overheads?