Unit 3 Overheads - Tutorial Sheet

UNIVERSITY OF TECHNOLOGY,JAMAICA
INTRODUCTION TO COSTING
UNIT 3: ACCOUNTING FOR OVERHEADS
Question 1
Rolex Ltd planned to produce 500,000 units for the coming year using 120,000 labour hours.
Planned fixed overhead costs amount to $420,000 and overhead is absorbed on a labour hour
basis.
Determine the fixed overhead over or under absorbed in each of the following situations:
(a) The company produced 480,000 units but used 125,000 labour hours; and fixed overhead
cost was as planned.
(b) The activity level was as planned but actual overhead cost incurred was $385,000.
(c) The company produced 510,000 units and used 118,000 hours. The actual fixed overhead
costs incurred amounted to $465,000.
Question 2
Mandeville Ltd planned to produce 200,000 units of “X”, using 40,000 machine hours at an
expected fixed overhead cost of $340,000. Fixed overheads are absorbed on a machine hour
basis.
Calculate the amount of fixed cost over or under absorbed if:
(a) The company produced 210,000 units using 38,000 machine hours and actual fixed overhead
cost incurred was $350,000.
(b) The company incurred the same fixed cost as planned but produce the 200,000 units using
40,500 hours.
(c) The company produced 190,000 units at a fixed cost of $290,000, using 30,000 hours.
Page 1 of 4
Question 3
Barns Ltd. has three production departments: A, B, and C, and two service departments: Stores
and Maintenance. The company absorbs its overhead costs on a machine hour basis in depts. A
and B, and a labour hour basis in department C. The entity apportions indirect wages using
labour hours worked in each department. The company has budgeted its production overhead
costs for the forthcoming year as follows:
$
Indirect wages 96,000
Depreciation of plant 376,000
Rent 147,000
Power 72,000
Canteen costs 123,000
Plant insurance 117,500
The following information is also available:
A B C Stores Main.
Labour Hours 9,000 7,000 16,000 4,000 4,000
Plant value $130,000 $70,000 $20,000 $5,000 $10,000
Floor area (sq. m) 40,000 30,000 20,000 10,000 5,000
Machine hours 12,000 15,000 5,000 4000 nil
Employees 75 60 50 8 12
Stores requisitions 10,000 8,000 2,000 nil 2,000
KWH (‘000) 100 60 60 10 10
Required:
(a) Prepare an overhead cost analysis for the period concerned, showing clearly the bases of
apportionment used.
(b) Calculate the overhead absorption rates for each of the three production departments. (Re-
apportion the maintenance costs on the basis of machine hours.)
(c) Calculate the selling price of a unit of product (to the nearest $) based on the estimates
below and using the absorption rates calculated in (b) above. The company requires a profit
of 20% of the selling price.
Material 40 kilos @ $5 per kilo
Direct Labour A 10 hours @ $15 per hour
Direct Labour B 4 hours @ $14 per hour
Direct Labour C 12 hours @ $16 per hour
Machine hours A 15
Machine hours B 10
Page 2 of 4
Question 4
Jamming Limited has two production departments: Forming and Assembly. The company also
has two service departments: Maintenance and Stores. It manufactures Part YDN12 that passes
through both departments. For the period, the following budgeted data are indicated below:
The following budgeted costs are to be allocated to the departments for the corresponding period:
Forming Assembly Maintenance Stores

Indirect Material $4,000,000 $5,000,000 $500,000 $500,000
Indirect Labour $6,000,000 $5,000,000 $400,000 $600,000
Additionally, the following un-allocated budgeted overhead costs were identified by the
production manager:
$
Rent and Rates 2,000,000
Plant Depreciation 1,800,000
Heat and Light 1,200,000
Plant Insurance 5,000,000
Canteen costs 1,000,000
The following information is also available:
Forming Assembly Maintenance Stores

Direct Labour Hours 100,000 500,000 nil nil
Plant value $80,000,000 $80,000,000 $20,000,000 $20,000,000
Floor area (sq. m) 75,000 75,000 25,000 25,000
Machine hours 400,000 100,000 nil nil
Employees 100 70 20 10
Stores requisitions 60,000 35,000 5,000 nil
Maintenance Hours 40,000 50,000 nil 10,000
Required:
(a) Prepare the overhead cost analysis sheet showing clearly, the basis of apportionment.
(b) Calculate the OAR for the two-production department by choosing the most appropriate
bases and using simultaneous equation to assist in re-apportioning service department
costs. (Use two decimal places for OAR)
(c) Assuming Forming and Assembly utilised 150,000, 525,000 direct labour hours and
375,000 and 110,000 machine hours respectively for the period. Calculate the overheads
absorbed within these departments.
Page 3 of 4
Question 5
The information below concerns the budgeted activity of Redstone Manufacturing Company Ltd
for the coming year. There are two production departments (Milling and Packaging) and two
service departments (Maintenance and Personnel).
Milling Packaging Maintenance Personnel

Indirect labour 120,000 140,000 50,000 30,000
Indirect Materials 24,000 32,000 6,000 20,000
Heating and lighting 24 000

Rent and rates 36 000
Depreciation 60,000
Supervision 48 000
Power 40,000
The following additional information is also available:
Milling Packaging Maintenance Personnel

Floor area in sq. metres 20,000 24 000 10,000 6 000
Book value of machinery ($) 150,000 120,000 20,000 10,000
Number of employees 50 40 10 20
Kilowatt hours 9,000 8,000 2,000 1,000
Maintenance hours 1,000 800 --- 200
The Milling department is machine intensive, whereas the Packaging department is labour
intensive. There are12,640 machine hours budgeted for the milling department and 15,700 labour
hours are budgeted for the packaging department for the year ending 31 December 2018.
REQUIRED:
(a) Prepare overhead analysis sheets showing the allocation and apportionment of overheads
to the four cost centres on the following bases:
(i) Repeat Distribution method

(ii) Simultaneous Equations method
(b) Under both methods, calculate the overhead absorption rates for the two production
departments.
Page 4 of 4

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UNIVERSITY OF TECHNOLOGY,JAMAICA

UNIT 3: ACCOUNTING FOR OVERHEADS

Calculate the amount of fixed cost over or under absorbed if:

The following information is also available:

Forming Assembly Maintenance Stores

The following information is also available:

Forming Assembly Maintenance Stores

Milling Packaging Maintenance Personnel

Heating and lighting 24 000

The following additional information is also available:

Milling Packaging Maintenance Personnel

(i) Repeat Distribution method

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