Question

A furniture making business manufactures quality furniture to customers' orders. It has three production departments and two service departments. Budgeted overhead costs for the coming year are: Totals £ Rent and Rates 12, 800 21.00 Machine insurance 6,000 2,000 Canteen 3200 6,400 Depreciation 18,000 36000 Production supervisor's salaries Heating and lighting 6,400 2,810 70,400 32.000 The three production departments - A B and C,, and the two service departments - X and V, are housed in the new premises, the details of which , together with other statistics and information, are given below: Departments A B C X Y Floor area occupied 3000 1800 600 600 400 Machine value £000 24 10 8 4 Direct labour hours budgeted (for 3200 1800 1000 supervision) Labour rate per hour £ 3.80 3.50 3.40 3.00 3.00 Service department X cost apportioned 50% 25% 25% Service department Y cost apportioned 20% 30% 50% Required: a) Prepare a statement showing the overhead cost budgeted for each department. Also calculate a suitable overhead absorption rates knowing that the production is labour-intensive b) Two pieces of furniture are to be manufactured for customers. Direct costs are as follow: Job 123 Job 124 £108 £154 Direct material 16 hours in Dep A 20 hours in Dep A Direct labour 12 hours in Dep B 10 hours in Dep B 10 hours in Dep C 14 hours in Dep C Calculate the cost per each job

Answer 1

1200 500 250 6000 3000 1706.000 9000 12800 3000 35506 3600 1250 960.000 3750 7200 1800 18560 Base of allocation Total Base Rate Rent and Rates Floor area occupied 6400 Machine Insurance Machine Value 48 125 Canteen Direct Labor hours 6000 0.533333333 Depreciation Machine Value 375 Supervisor's salary Direct Labor hours 6000 4 Heating and lighting Floor area occupied 6400 11 Total Allocation of supporting dept Dept x 3800 50:25:25 2200 20:30:50 1200 1000 534.000 3000 4000 Total Cost 800 12800 6000 3200 18000 24000 400 6400 22001 70400 1500 750) 600 600 3800 10334 Depty Total 3800 2200 70400 Labor Hours Rate per hour Job 123 1900 950 4401 660 37846 20170 3200 1800 11.826875 11.20555556 201 236.5375 134.4666667 16 10 189.23 112.0555556 950 11001 12384 1000 12.384 101 123.84 12 494.84417 Hours Cost Allocated Hours Cost Allocated Job 124 173.376 474.66156 Job 123 Job 124 154 108 Direct Material Direct Labor 761 60.8 Dept A Dept B Dept C 421 35 34 47.6 Overheads Cost Total 494.84417 474.6615556 800.84417 726.0615556