• Profile photo of John Moffat says

        I assume you mean the cost of a desk in example 3 ?!!!

        Materials are $12 per unit. Labour is 4 hours x $2 = $8 per unit.
        Assembly overheads are 3 hours x $3 = $9 per unit.
        Finishing overheads are 1 hour x £10 = $10 per unit.

        Total = 12 + 8 + 9 + 10 = $39

        (You can see answers to all of the examples at the end of the Lecture Notes)

  1. avatar says

    I have a question regarding the example 3.
    When I address this example, I added the labour cost for assembly and finishing department.
    [For example, for chairs,I added 3hr*2$(assembly) + 1hr*2$(finishing) to the answer you got in the lecture]
    Is it absolbed into the each department’s overheads??
    Thanks for your lecture and care.

    • Profile photo of John Moffat says

      But I have included the labour in the cost cards (you certainly don’t include them in overheads).

      For chairs I have charged for labour 4 hours at $2 (which is exactly the same as having 3 hours at $2 and 1 hour at $2).

      Check the answer again (it is at the back of the lecture notes).

      • avatar says

        Oh you are right.
        I thought it takes 4 hrs to make chairs itself and take extra 3hrs on assembling and 1hr on finishing additionally.

        Now everything is clear for me.

        Thanks for the fast reply ; )

  2. Profile photo of akshit says

    hey, at 27:40 the lecturer talks about rounding off to the nearest dollar… my question is if we have to round off to the next dollar whatsoever the amount is i.e if the amount is $12.5 we round it off to $13 but if the amount is $12.3 do we round it to $13 or we round it to $12?????
    thanking you in advance, thanks

    • Profile photo of John Moffat says

      The depreciation is $7,000. On the information given, the only sensible way of apportioning it is to base it on the net book value of the equipment in each department.
      The total NBV of all the equipment is 300,000 + 300,000 + 100,000 = 700,000.
      Since processing is 300,000 out of the total, the amount of depreciation given to processing is therefore 300,000/700,000 x 7,000 = 3,000. Same for the other departments.

  3. avatar says

    Great explanation…BTW if i was sitting their i could point out the miscalculation. I do point while listening lecture and was rechecking…thought i might be wrong…

    I didn’t ever get bore during lecture. THANKS.

    • Profile photo of John Moffat says

      In fact only 2 departments benefit from the canteen – the canteen is only there to feed the employees in the other 2 departments.

      If you continue with the next example you will see that having got the total cost of the canteen, we then recharge it to the two production departments.

      The approach is always the same – we first allocate and apportion overheads between all of the departments. Then we recharge the service departments to the production departments.

      Example 4 specifically asks for the overheads to be split between all three departments; example 5 then asks for the canteen costs to be reapportioned to the other two departments.

  4. Profile photo of John Moffat says

    I assume that you mean example 3 and that you have downloaded the Course Notes.

    The question says (about 4 lines from the end) that the remaining overheads are to be split 40% to assembly and 60% to finishing :-)

  5. avatar says

    I am doing FIA FA1,FA2, MA1 MA2 in June I wish I has found these videos earlier then I would not feel so lost in my class. Thank you. i watch your videos and work along with the examples before I go to my accounting classes each week. Your videos makes the topics so much clear.

  6. Profile photo of Alok says

    For example 3, any reason why supervisors salary is considered while calculating absorption rate? I understand supervisor’s salary is non-production cost. Please help. Thanks!

  7. avatar says

    Hi John, the video doesn’ for overheads part b …. It gets stuck on 5:13 … Could you take a look please?
    Btw … Good course I have been learning with a view to take F1 2 and 3 in december but could do with lots of practice questions? Any suggestions ? Thanks… Simon

  8. avatar says

    Can I get the working for test question 4 (chapter 7). The answer is £2840 but how is this calculated? And would it not be more helpful to show how you get to the answer rather than just give an answer? Just a suggestion. Thanks anyway for the help and its is much appreciated.

    • Profile photo of John Moffat says

      I assume you mean test question 5 :-)

      Because the labour is $400 in total and is paid $8 per hour, it means that there must be 50 hours of labour.

      Production overheads are $26 per labour hour, and so total production overheads are 50 hours x $26 = $1300.

      The prime cost is materials + labour = $300 + $400 = $700, and so the non-production overheads are 120% x $700 = $840.

      So……the total cost of the job is $300 (materials) + $400 (labour) + $1300 (prod o/heads) + $840 (non-prod o/heads) = $2840

    • Profile photo of John Moffat says

      We have apportioned it on the number of employees.
      You could have apportioned it earlier (and would have got the same final answer), but since it is a cost centre on its own it is more sensible to get the cost of the canteen separately and then apportion this cost on the basis of the number of employees.

    • Profile photo of John Moffat says

      The answer is in one of the posts below.

      The total space is 80,000 m^2. Of this, 50,000 is processing. Therefore processing has been given 50,000/80,000 of the total cost. (50/80 is the same as 50,000/80,000)

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