ANSWER THE FOLLOWING
1. Stow Solvents Ltd. has the following departments involved in one of the stages of solvent production:
• Chemical mixing
• Solvent bottling
• Maintenance
The budgeted fixed overheads relating to the departments for the next quarter are:
$ $
Insurance of machinery 50,400
Rent and rates 136,800
Indirect labour costs:
Chemical mixing 53,625
Solvent bottling 131,175
Maintenance 18,375 203,175
Total fixed overheads 390,375
The following information is also available:
Department Net book value Square metres Number of
of Noncurrent assets occupied employees
$ 000
Chemical mixing 432 660 14
Solvent bottling 216 480 48
Maintenance 72 60 6
Total 720 1,200 68
Fixed overheads are allocated or apportioned to the departments on the most appropriate basis. The total
maintenance overheads are then reapportioned to the two production departments. The maintenance
department spends 80% of its time maintaining equipment in the chemical mixing department.
Additional data
The chemical mixing department is highly automated and operates with expensive machinery. The solvent
bottling department, on the other hand, is highly labour intensive.
The following budgeted data relates to the next quarter:
Chemical mixing Solvent bottling
Number of machine hours 5,237 3,624
Number of labour hours 4,806 17,256
For each of the following departments, calculate the budgeted fixed overhead absorption rates (recovery
rates) for the next quarter using the most appropriate basis of absorption (Give your answers to the nearest
whole pound):
(a) The chemical mixing department (b) The solvent bottling department
Additional data
The following planning data relates to the production of solvent S258 in the first month of the next financial
year in the chemical mixing department.
Budgeted machine hours 460
Actual machine hours now expected to be worked 480
Actual overheads now expected to be incurred $ 16,200
Calculate the overhead under- or over-absorption now expected in the first month of the next financial year.
(Clearly state whether under- or over-absorption is expected).
2. Production comprises three departments:
• Cutting
• Finishing
• Maintenance
The budgeted and actual fixed production overheads of the company for November were as follows:
Machine insurance 6,000
Rent and other property overheads 17,100
Power costs:
Cutting 600
Finishing 1050
Maintenance 150
Indirect staff costs:
Cutting 5940
Finishing 4770
Maintenance 9,540
Total budgeted and actual fixed production overheads 45,150
The following information is also relevant:
Department Floor space occupied Net book value of Noncurrent assets
(square metres) $ 000
Cutting 6,000 20
Finishing 3,000 25
Maintenance 1,000 5
Overheads are allocated and apportioned using the most appropriate method. The total maintenance
overheads are then reapportioned to the cutting and finishing department. The maintenance records show
that 40% of time is spent in the cutting department and 60% in the finishing department.
ADDITIONAL DATA
Cutting department fixed overheads are absorbed on the basis of budgeted direct labour hours. Finishing
department fixed overheads are absorbed on the basis of budgeted machine hours. The following
information relates to the cutting and finishing departments for November.
• The budgeted number of direct labour hours in the cutting department was 9,600 hours.
• The budgeted number of machine hours in the finishing department was 7,050 hours.
• The actual direct labour hours worked in the cutting department were 9,250 hours.
• The actual machine hours worked in the finishing department were 7,350 hours.
Calculate the budgeted fixed overhead absorption rates for November for:
(a) the cutting department (b) the finishing department.
Calculate the production overhead absorbed for November in:
(i) the cutting department (ii) the finishing department.
(b) Calculate the under or over absorbed production overheads for November, indicating clearly whether
the overheads are under or over absorbed for:
(i) the cutting department (ii) the finishing department.
(c) Explain how the under or over absorbed production overheads for the cutting and finishing departments
will be recorded in the profit and loss account for November.
3. The manufacturing department has two production centres, and two service centres as follows:
Production centres
• Moulding
• Glazing
Service centres
• Maintenance
• Canteen
The budgeted fixed production overheads for the manufacturing department for November were as
follows:
Indirect glazing materials 1,140
Rent and other property overheads 15,000
Power costs 5,040
Indirect staff costs 8,910
Machine depreciation 8,310
Total budgeted fixed overheads 38,400
The following information is also relevant:
Centres
Moulding Glazing Maintenance Canteen
Floor space (sq m) 3,000 1,000 500 500
Power costs [$] 1,200 3,290 250 300
Indirect staff costs [$] 1,100 2,010 3,800 2,000
Machine depreciation [$] 1,710 6,600
Number of employees 26 8 4
Overheads are allocated and apportioned between centres on the most appropriate basis. The total
canteen overheads are reapportioned to the other three centres based on the number of employees.
Maintenance centre overheads are then reapportioned to the moulding and glazing centres. The
maintenance records show that 20% of time is spent in the moulding centre and 80% in the glazing centre.
ADDITIONAL DATA
Moulding centre fixed overheads are absorbed on the basis of direct labour hours. Glazing department fixed
overheads are absorbed on the basis of machine hours. The following information relates to the moulding
and glazing centres for November:
(a) Calculate the budgeted overhead absorption rate for November for:
(i) the moulding centre (ii) the glazing centre
Moulding centre Glazing centre
Budgeted labour hours 4,000
Budgeted machine hours 6,000
Actual labour hours worked 4,200
Actual machine hours worked 5,600
Actual fixed overheads $17,200 $20,850
(a) Calculate the budgeted overhead absorption rate for November for:
(i) the moulding centre (ii) the glazing centre
(b) Calculate the under or over absorbed production overheads for November, showing clearly whether the
overheads are under or over absorbed for:
(i) the moulding centre (ii) the glazing centre
[c]Explain how an increase in budgeted activity in the moulding and glazing centres would affect the
overhead cost to be charged to an individual product.
4. Wrap well Ltd has the following departments involved in the first stage of production:
• Plastics Moulding
• Plastics Extrusion
• Maintenance
The budgeted fixed overheads relating to the departments for Quarter 1, 2006 are:
$ $
Insurance of machinery 22,400
Rent and rates 60,800
Indirect labour costs:
Plastics Moulding 90,500
Plastics Extrusion 78,300
Maintenance 22,800 191,600
Total fixed overheads 274,800
The following information is also available.
Department Net book value of square metres Number of
noncurrent assets occupied employees
$ 000
Plastics Moulding 720 1,100 14
Plastics Extrusion 360 800 12
Maintenance 120 100 4
Total 1,200 2,000 30
Fixed overheads are allocated or apportioned to the departments on the most appropriate basis. The total
maintenance overheads are then reapportioned to the two production departments. 70% of the
Maintenance department’s time is spent maintaining equipment in the Plastics Moulding department.
ADDITIONAL DATA
The Plastics Moulding department recovers its fixed overheads on the basis of the budgeted machine hours.
The Plastics Extrusion department, however, recovers its fixed overheads on the basis of the budgeted
direct labour hours.
The following information relates to these two departments for October 2005.
Plastics Moulding department Plastics Extrusion department
Budgeted fixed overhead
absorption rate $ 60/hour $ 25/hour
Actual machine hours worked 850
Actual direct labour hours worked 1,520
Actual fixed overheads $ 55,000 $ 36,000
(a) Calculate the fixed overhead absorbed during October in:
(i) the Plastics Moulding department
(ii) the Plastics Extrusion department
(b) Calculate the over or under absorption of fixed overheads during October, stating
clearly whether overheads have been over or under absorbed, for:
(i) the Plastics Moulding department
(ii) the Plastics Extrusion department
MARKING SCHEME
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