Question

Question 2 You are the cost Accountant of an industrial concern and have been given the following budgeted information regarding the four cost centres within your organisation. The following overhead details have been estimated for the next period: Dept 1 RM 60,000 12,000 Dept 2 RM 70,000 16,000 Maintenance RM 25,000 Canteen RM 15,000 10,000 3,000 Inirect labour Consumables Heat/Light (floor area) Rent and rates Depreciation of equipment Supervision Power Total RM 170,000 41,000 12,000 18,000 30,000 24,000 20,000 315,000 The following information is available: Dept 1 Floor area (m) 10,000 Value of equipment (RM) 150,000 Number of employees 40 Kilowatt hours 4500 Dept 2 12,000 120,000 30 4000 Maintenance 5,000 20,000 10 1000 Canteen 3,000 10,000 Total 30,000 300,000 80 10,000 500 You are also told: a. The canteen staff are outside contractors. b. Departments 1 and 2 are production centres and the maintenance department and canteen are service cost centres c. The maintenance department provides 4,000 service hours to Department 1 and 3,000 service hours to Department 2. d. Department is machine intensive and Department 2 is labour intensive. e. That 6,230 machine hours and 7,850 labour hours are budgeted for Departments 1 and 2 respectively. Requirements: 1. Prepare and overhead statement showing clearly allocations and apportionments to each cost centre. 2. Calculate appropriate absorption rates for each Department 1 and 2.

Answer 1

ANSWER 1
Statement Showing Allocation and Apportionment of Overheads Between Cost Centre
PARTICULARS	BASIS	PRODUCTION DEPARTMENTS	SERVICE DEPARTMENTS	TOTAL
DEPARTMENT1	DEPARTMENT2	MAINTENANCE	CANTEEN
Indirect labour	Allocation	60,000.00	70,000.00	25,000.00	15,000.00	1,70,000.00
consumables	Allocation	12,000.00	16,000.00	3,000.00	10,000.00	41,000.00
Heat	Floor area	4,000.00	4,800.00	2,000.00	1,200.00	12,000.00
Rent and Rates	Floor area	6,000.00	7,200.00	3,000.00	1,800.00	18,000.00
Depreciation of Equipment	Value of Equipment	15,000.00	12,000.00	2,000.00	1,000.00	30,000.00
supervision	No. of Employees	12,000.00	9,000.00	3,000.00	-	24,000.00
power	Killowatt Hours	9,000.00	8,000.00	2,000.00	1,000.00	20,000.00
Total		1,18,000.00	1,27,000.00	40,000.00	30,000.00	3,15,000.00
REAPPORTIONMENT:
Canteen (4:3:1)		15,000.00	11,250.00	3,750.00	-30,000.00	-
Maintenance (4:3)		25,000.00	18,752.00	-43,750.00	-	-
Total		1,58,000.00	1,57,000.00	-	-	3,15,000.00
ANSWER 2
Calculation of Absorption Rate
Absorption Rate	= Budgeted overhead / Basis of Recovery
Production Dept. 1	= Budgeted overhead / Machine Hours
	= 158000 / 6230		25.36
Production Dept. 2	= Budgeted overhead / Labour Hours
	= 157000 / 7850		20.00