Question $4(30$ marks$)$

Mango Value Ltd is preparing its overhead budgets for the December $2023$ period. The entity

makes a product that passes through three production department and is also affected by two

service departments. The three production departments are milling, processing and packaging,

and two service departments are stores and inspections.

The following budgeted overheads and budgeted activity levels have been produced:

Milling Processing Packaging Stores Inspections

Overhead cost $$2,500,000$ $$2,200,000$ $$3,850,000$ $$2,000,000$ $$500,000$

Machine hours $250,000300,000450,000$

Overhead is absorbed on a machine hour basis. It has been estimated that service department

usage is as follows:

Milling Processing Packaging Stores Inspections

Stores Requisitions $2,5001,2501,000---250$

Number of Inspections $2507512550---$

However, during the period ended December $31,2023,$ actual overheads in department milling,

processing and packaging were as follow respectively: $$2,400,000,$ $$2,800,000$ and $$4,000,000$;

while, actual activity levels for all three were $240,000,325,000$ and $480,000$ machine hours for

milling, processing and packaging respectively.

Required:

$($a$)$ Use the direct method to derive the re$-$allocated overheads to production departments and

derive the overhead absorption rates for these departments. $(6$ marks$)$

$($b$)$ Use the step$-$down method to derive the re$-$allocated overheads to production departments

and derive the overhead absorption rates for these departments. $(8$ marks$)$

$($c$)$ Use the simultaneous equation method to derive the re$-$allocated overheads to production

departments and derive the overhead absorption rates for these departments. $(11$ marks$)$

$($d$)$ From the information calculate in part $($c$)$ above, derive the under$/$under absorption of

overheads in each department. $(5$ marks$)$