REQUIRED

Use the information provided below to answer the following questions:

3.1

Calculate a single overhead rate for the entire plant using machine hours as the basis for allocation.

(3 marks)

3.2

Calculate the cost centre rates using the ABC system.

(13 marks)

3.3

It has been said that traditional allocation methods have a serious flaw that affects the ability to assign fixed manufacturing costs accurately to products. Explain TWO (2) factors that are responsible for this.

(4 marks)

INFORMATION

Compac Ltd manufactures several products. The budgeted costs and estimated operating information are as follows:

Budgeted costs:

R

Machine set-ups

750 000

Inspections

562 500

Materials handling

1 125 000

Materials procurement

1 312 500

Production

1 875 000

Total overheads

5 625 000

Operating information:

Machine hours

150 000

Material usage (kg)

750 000

Machine set-ups

3 000

Purchase orders

37 500

Inspections

4 500