QUESTION FIVE

BLUELINE Ltd manufactures many different products which pass through two

production cost centres (P1 and P2).

There are also two service cost centres (S1 and S2) in the factory. The following

information has been extracted from the budget for the coming year:Page 5 of 5

COST CENTRES

P1 P2 S1 S2

Allocated and apportioned production

overheads K477,550 K404,250 K132,000 K96,000

Number of employees 30 65 10 15

Total direct labour hours 68,000 11,400

Total machine hours 4,000 14,000

Service cost centre S1 costs are reapportioned to all other cost centres based on the

number of employees. Service cost centre S2 only does work for P1 and P2 and its

costs are reapportioned to these centres in the ratio 5 to 3 respectively.

Required:

(a) Calculate:

(i) the machine hour absorption rate for cost centre P1, and

(ii) the direct labour hour absorption rate for cost centre P2. [6 Marks]

(b) Explain the difference between production overheads that have been 'allocated' and

those which have been 'apportioned' to cost centres. [2 Marks]

(c) Explain why some manufacturing companies are able to allocate electric power

costs to production cost centres, whereas others can only apportion them. [2 Marks]

[TOTAL: 10 MARKS]