Question

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B. Alphabet Co has three production departments A, B, and C and one service department S. Alphabet Co are preparing their annual budget for the final quarter of 2020. Planned overhead costs for the quarter are as follows: Overheads Supervision Depreciation Insurance Rates and Rent Other bills £ Absorption basis 12000 Direct Labour Hours 15000 Machine value 5000 Machine value 30000 Floor area 2500 Floor area The following information is available for each department А 5000 1000 Absorption basis Machine Value (£) Budgeted Direct Labour hours Floor Area Occupied (Square metres) B 2500 500 3500 1500 1500 1000 1500 400 500 100 Of the total overhead costs allocated to service department S 20% is charged to A 40% to B, and the remainder is charged to o

Answer 1

Overhead Rates (A/B) Determination of Overhead rates :- Total of Estimated Particulars Absorbtion Overhead (A) basis (B) Supervision 12,000 4,000 Depreciation 15,000 12,500 Insurance 5,000 12,500 Rates and taxes 30,000 2,500 Other bills 2,500 2,500 64,500 3.00 Per Direct labor hr 1.20 Per machine value 0.40 Per machine value 12.00 Per Square metre 1.00 Per Square metre Overhead allocated to Department B 1,500 Department C Absorbtion basis Overhead allocated to Department C 4,500 Departments Overhead Absorbtion allocated to basis Departments 1,000 3,000 1,500 a) Allocation of Overhead to each department using Overhead rates :- Department A Overhead Department B Particulars Overhead rate Absorbtion allocated to Absorbtion basis Department A basis Supervision 3.00 1,000 3,000 500 Depreciation 1.20 5,000 6,000 2,500 Insurance 0.40 5,000 2,000 2,500 Rates and taxes 12.00 1,500 18,000 400 Other bills 1.00 1,500 1,500 400 Total 30,500 3,500 4,200 1,500 1,800 3,000 1,000 1,400 1,500 600 3,500 500 4,800 6,000 100 1,200 400 500 500 100 100 10,700 16,600 6,700 b) Allocation of Service Department cost to Production Departments :- Allocation Overhead of basis to Allocated Department Departments Production amount $ to be allocated Department A 6,700 20% 1,340 B 6,700 40% 2,680 2,680 с 6,700 40% Total 6,700