Tutorial 4 Unit 4 Semester 1 2016 (Past exam questions)

Question 1 (June 2012 Normal)

A factory with three departments uses a single production overhead absorption rate, expressed as a percentage of direct wages cost. It has been suggested that departmental overhead absorption rates would result in more accurate job costs. Set out below are budgeted and actual data for the previous period, together with information relating to job no. 657.

Budget: 3. Department

Direct wages

A N$ 25 000 B 100 000 C 25 000

Direct labour hours

10 000 50 000 25 000

Machine hours

40 000 10 000 -

Production overheads

N$ 120 000 30 000 75 000

Total: Actual 4.

Total:

Department

150 000

A N$ 30 000 B 80000 C 30000

140 000

85 000

12 000 45 000 30 000 87 000

50 000

45 000 14 000 - 59 000

225 000

N$ 130 000 28 000 80 000 238 000

During this period job no. 657 incurred the actual costs and actual times in the departments as show below:

Department A B

120 60 60 40 10

Direct Material N$

Direct wages N$

Direct labour hours

Machine Hours

C 10 10 10 -

After adding production overhead to prime cost, one-third of total cost is added to production cost for gross profit. You are required to:

1.1 calculate the current overhead absorption rate (2 Marks)

1.2 using the rate obtained in 4.1 above, calculate the production overhead charged to job no 657,

and state the production cost and expected gross profit on this job. (5 Marks)

1.3 Compute departmental overhead absorption rates, using machine hours as basis for department

A, and labour hours as basis for department B and C. (6 Marks)

1.4 Use the departmental overhead absorption rates and calculate the production overheads

charged to job no. 657. (2 Marks)

1.5 Show the over-/under-absorption, by department and in total, for the period using the rates

calculated in 4.3 as basis for allocating the overheads.