Critically examine the production directors suggestion


Assignment:

Bookdon Public Limited Company manufactures three products in two production departments, a machine shop and a fitting section; it also has two service departments, a canteen and a machine maintenance section. Shown below are next year's budgeted production data and manufacturing costs for the company.


Product

Product

Product


X

Y

Z

Production

4200 units

6900 units

1700 units

Prime cost:




Direct materials

£11 per unit

£14 per unit

£17 per unit

Direct labour:




Machine shop

£6 per unit

£4 per unit

£2 per unit

Fitting section

£12 per unit

£3 per unit

£21 per unit

Machine hours per unit

6 hours per unit

3 hours per unit

4 hours per unit





Machine



Machine

Fitting


Maintenance



shop

section

Canteen

Section

Total

Budgeted overheads (£):






Allocated overheads

27660

19470

16600

26650

90380

Rent, rates, heat and light





17000

Depreciation and insurance of equipment





25000

Additional data:






Gross book value of equipment (£)

150000

75000

30000

45000


Number of employees

18

14

4

4


Floor space occupied (square metres)

3600

1400

1000

800


It has been estimated that approximately 70% of the machine maintenance section's costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.

Required:

(a) (i) Calculate the following budgeted overhead absorption rates:

A machine hour rate for the machine shop.

A rate expressed as a percentage of direct wages for the fitting section.

All workings and assumptions should be clearly shown.

(ii) Calculate the budgeted manufacturing overhead cost per unit of product X.

(b) The production director of Bookdon PLC has suggested that 'as the actual over-heads incurred and units produced are usually different from the budgeted and as a consequence profits of each month end are distorted by over/under absorbed overheads, it would be more accurate to calculate the actual overhead cost per unit each month end by dividing the total number of all units actually produced during the month into the actual overheads incurred.'

Critically examine the production director's suggestion.

Solution Preview :

Prepared by a verified Expert
Accounting Basics: Critically examine the production directors suggestion
Reference No:- TGS02040667

Now Priced at $20 (50% Discount)

Recommended (95%)

Rated (4.7/5)