Question: John Smith owns a small manufacturing firm, Smith’s Spoons, which produces wooden spoons. The production overhead budgets have been prepared. Cost centre expenses and related information have been budgeted as follows:
|
|
Total
|
Machine Shop A
|
Machine Shop B
|
Assembly
|
Canteen
|
Maintenance
|
|
Indirect Wages £
|
78,560
|
8,568
|
9,190
|
15,674
|
29,650
|
15,460
|
|
Consumable materials(incl. Maintenance) £
|
16,900
|
6,400
|
8,700
|
1,200
|
600
|
-
|
|
Rent and Rates £
|
16,700
|
|
|
|
|
|
|
Buildings Insurance £
|
2,400
|
|
|
|
|
|
|
Power £
|
8,600
|
|
|
|
|
|
|
Heat and Light £
|
3,400
|
|
|
|
|
|
|
Depreciation of Machinery £
|
40,200
|
|
|
|
|
|
|
Area (m2)
|
45,000
|
10,000
|
12,000
|
15,000
|
6,000
|
2,000
|
|
Value Of Machinery £
|
402,000
|
201,000
|
179,000
|
22,000
|
-
|
-
|
|
Power Usage: Technical Estimates (%)
|
100
|
55
|
40
|
3
|
-
|
2
|
|
Direct Labour (Hours)
|
35,000
|
8,000
|
6,200
|
20,800
|
-
|
-
|
|
Machine Usage (Hours)
|
25,200
|
7,200
|
18,000
|
-
|
-
|
-
|
|
Units Of Production
|
20,000
|
|
|
|
|
|
Required to do:
Q1. Determine budgeted overhead absorption rates for each of the production departments, using bases of apportionment and absorption that you consider most appropriate from the information provided.
Q2. If actual activity is as follows:
|
|
Machine Shop A
|
Machine Shop B
|
Assembly
|
|
Direct labour hours
|
8,200
|
6,500
|
21,900
|
|
Machine usage hours
|
73,00
|
18700
|
-
|
|
Overheads
|
68,200
|
52,150
|
46,592
|
Calculate the amount of under/over-absorption of production overheads for all three cost centres, giving reasons for any under/over absorption of the overheads.