Question

LILI SDN BHD is a manufacturer and supplier of home cabinets. It has two main Departments that is the Production Department and the Service Department. The Production department has three (3) sub-departments: Machining, Assembly and Finishing. All three departments are labor-intensive. The Service Department has two sub-department which is Maintenance and General Services.

Cost Data

Production Departments				Service Departments
Cost Items (RM)	Fabrication	Assembly	Finishing	Maintenance	Gen.Services
Indirect Supplies	3,000	2,500	2,000	1,000	2,500
Indirect Labour	18,000	10,000	8,000	4,500	1,500
Indirect Material	5,000	3,500	1,000	1,000	1,800
Repairs	2,000	1,000	1,000	1,500	200
Total	28,000	17,000	12,000	8,000	6,000

LILI SDN BHD budgeted overhead cost for it’s three production and two service departments is as follows.

Common Overhead Cost Items	RM
Rent and Rates	128,000
Insurance for Machine	60,000
Telephone Charges	32,000
Depreciation	180,000
Production Supervisor’s Salary	240,000
Heating and Lighting	64,000
Total	704,000

The basis of allocation of the common overhead cost items is as follows:

Common Overhead Cost Items	Basis of allocation
Rent & Rates	Floor area occupied
Insurance for Machine	Machine Value
Telephone charges	Floor area occupied
Depreciation	Machine hours
Production Supervisor’s salary	Direct labor hours
Heating & lighting	Floor area occupied

Other data:

Production Departments				Service Departments
	Fabrication	Assembly	Finishing	Maintenance	Gen. Services
Floor area       (sq. \meters)	30,000	18,000	6,000	6,000	4,000
Machine value	240,000	100,000	80,000	40,000	20,000
Direct labor hrs. budgeted	32,000	18,000	10,000
Labor rates per hr.	RM 3.80	RM 3.50	RM 3.40	RM 3.00	RM 3.00
Service Department: Maintenance cost apportioned	50%	25%	25%
Service Department: General Services cost apportioned	20%	30%	50%

Required:

(a) Prepare an overhead analysis sheet (cost allocation schedule) showing clearly the allocations, apportionments and reapportionments to each cost center. (Please round-up to the nearest two (2) decimal place).

                                                                                                                                                                                      

(16 marks)          

(b) Calculate the appropriate absorption rates for each production departments.

   (3 marks)

The following jobs were completed for customers:

	Job 102	Job 103
Direct material	RM 1,540	RM 1,080
Direct Labour	40 hours: Fabrication	32 hours: Fabrication
	24 hours: Assembly	20 hours: Assembly
	20 hours: Finishing	28 hours: Finishing

(c) Calculated the total cost for Job 102 & Job 103. (6 marks)

(d) If the firm quotes prices to customers that reflect a required profit of 25% on selling price, calculated the quoted selling price for each job.

Answer 1

A.overhead analysis sheet

Common Overhead Cost Items	Basis of allocation	Amount	Production Departments			Service Departments
			Fabrication	Assembly	Finishing	Maintenance	Gen.Services
Rent and Rates	Floor area occupied (30:18:6:6:4)	128000	60000	36000	12000	12000	8000
Insurance for Machine	Machine Value (24:10:8:4:2)	60000	30000	12500	10000	5000	2500
Telephone Charges	Floor area occupied (30:18:6:6:4)	32000	15000	9000	3000	3000	2000
Depreciation	Machine hours (32:18:10)	180000	96000	54000	30000	0	0
Production Supervisor’s Salary	Direct labor hours (32:18:10)	240000	128000	72000	40000	0	0
Heating and Lighting	Floor area occupied (30:18:6:6:4)	64000	30000	18000	6000	6000	4000
Total		704000	359000	201500	101000	26000	16500

2. absorption rates for each production departments

Overhead Cost Items	Basis of allocation	Amount	Production Departments			Service Departments
			Fabrication	Assembly	Finishing	Maintenance	Gen.Services
Total Common Overhead Cost		704000	359000	201500	101000	26000	16500
Service Department: Maintenance cost apportioned	50:25:25	26000	13000	6500	6500	-	-
Service Department: General Services cost apportioned	20:30:50	16500	3300	4950	8250	-	-
Total		746500	375300	212950	115750	-	-