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  1. Profile photo of Ruksar says

    Hello Sir

    I tried both ways and they gave me almost the same answers. However i miss out on your lecture in terms of audio after 14.50min as i can not hear what you are explaining. please check.

    Thanks.

  2. Profile photo of David says

    I didnt get the 0.15 x 0.20 at first but the penny has just dropped, and now I understand.

    May I ask:
    Would you be asked in any of the exams to do the algebraic version for recharging dept’s?

  3. avatar says

    I still don’t understand where the 2250 comes from , can anyone please do the algebraic method of example 6 for me step by step,,,I am totally lost, I have watched this lecture so many times but it is still not clear.

  4. Profile photo of Heba says

    Hello sir!
    Thankyou for your lectures.i have a doubt in algebraic method
    For eg: the last question 6
    S=6300+0.05M
    M=8450+0.10S

    S=6300+0.05(8450+0.10S)
    S=6300+423+0.005S
    0.995S =6723
    Where did this figure 0.995S come from??
    rest everything is fine but could you please explain that bit.

  5. avatar says

    Thank you so much. I became super clear..
    I have last question)))
    A company has a budgeted labor cost of 180 000 dollar for the production 30 000 units per month. Each unit is budgeted to take 3 hours of labor. The actual labour cost during the month was 160 000 dollar for 28 000 units and 85 000 hours were worked.
    What is the labour efficiency variance?.

    • Profile photo of John Moffat says

      Have you watched all the lectures? This question relates to the chapter and lecture on variance analysis, and so please do not post it under a lecture on accounting for overheads.

      You should post the question in the F2 Ask the Tutor forum (after you have watched the lecture on variance analysis).

  6. avatar says

    Hi John
    Can u help me with this question? The answer is 8 (from mock exam). can not fih=gure out somehow. Thanks
    A company produces 2 products P and Q that are both worked in 2 departments of 1 and 2.
    Each unit of P spends 1 hour in department 1 and 2 hours in department 2
    Each unit of Q spends 2 hours in department 1 and 2 hours in department 2
    The total budgeted production of P is 5000 units and Q is 10 000 units.
    The total budgeted overheads are 50 000 US dollar for department 1 and 90 000 US dollar for department 2
    What is the overhead per unit of P?

  7. Profile photo of Imran says

    Sir, could please explain the 4th test question of chapter 7,
    it’s really confusing..
    A company manufactures two products L and M in a factory divided into two cost centres, X and Y. The fol- lowing budgeted data are available: Cost centre X Y Allocated and apportioned fixed overhead
    __________________________________X___________Y_______________________
    costs____________________________$88,000 $96,000_____________________
    Direct labour hours P.u: Product L___ 3·0________ 1·0___________________________
    ___________________Product M___2·5 _________2·0__________________________
    Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour basis.
    What is the budgeted fixed overhead cost per unit for Product M?

    • Profile photo of John Moffat says

      First you have to calculate the absorption rate for each department separately.

      For department X, the total overheads are $88,000.
      The total hours worked are 8,000 x 3.0 (for product L) and 8,000 x 2.5 (for product M). That comes to a total of 44,000 hours.
      So for department X, the absorption rate is 88,000/44,0000 = $2 per hour.

      You can do the same exercise for department Y, and you should get $4 per hour.

      To get the cost for product M, it will be 2.5 hours in X at $2 per hour, plus 2.0 hours in Y at $4 per hour.

  8. Profile photo of Satiam says

    First of all, ur lectures are really helpful… u explain the concepts so well

    My problem is that when u do the algebraic method(for e.g in Q6 in ur lecture), after calculating S and M through algebra and apportioning it to production dept 1(60% and 75% respectively), what do we do with the remaining 5%?
    in my head its like 5% of the overheads are ignored and NOT apportioned..is there any way in which the 5% should be apportioned?

    • Profile photo of John Moffat says

      Its not the easiest thing to explain by typing :-)

      If you calculate the remaining percentage for each of the two service departments, then you will find that they both come to exactly the same amount, and effectively ‘cancel each other out’.

      Also, if you do repeated apportionment (instead of using the algebra) then you end up with exactly the same answer, which in a sense ‘proves’ that the algebra does work :-)

    • Profile photo of John Moffat says

      I subtracted the same figure from both sides of the equation.

      Its a bit difficult to be able to say more here. All I can suggest is that you either watch the lecture again, or work through the answer at the back of the course notes.

      • Profile photo of John Moffat says

        I make it clear in the lecture that you can do it either way – they will both give the same answer. Do it whichever way you find easiest and quickest.

        For the 0.97S, I subtract 0.03S from both sides. (S – 0.03S = 0.97S)

        (Remember that the answers are also at the end of the Course Notes)

    • Profile photo of John Moffat says

      4:
      The total overheads for centre X are $88,000.
      The total hours worked in X are (8,000 x 3.0) + (8,000 x 2.5) = 44,000 hours.
      So the absorption rate for X is 88,000/44,000 = $2 per hour.
      You can do the same for Y and calculate the absorption rate for centre Y per hour.

      To get the cost per unit of M, it is 2.5 hours at $2 per hour, plus 2.0 hours at the absorption rate for centre Y.

      5:

      Since labour is paid $8 per hour, they are working 400/8 = 50 hours.

      So the total cost is the total of materials (300), plus the labour (400) plus production overheads (50 hours at $26 per hour) plus non-production overheads (120% x (300 + 400)).

  9. avatarTemperance says

    @ John Moffat

    Help!I’m sooo close to screaming lol ok. I can’t seem to get the correct answer i.e. (D). This is what I did :

    Cost Centers
    Allocated app o/h = 88,000 (x)
    Product M (2.5/5.5 x 88,000) 40,000 (x)
    Total o/h in cost center x = 128,000

    Allocated app o/h = 96,000 (y)

    Product M 2/3 x 96,000 = 64,000
    Total o/h in cost center (y) = 160,000

    Total No. hours in X = 8000 X 2.5 = 20,000 therefore :
    Fixed Cost per unit = 128,000/20,000 = $6.40

    Total No. hours in Y = 8000 X 2 = 16,000 therefore :
    Fixed Cost per unit = 160,00/160,000 = $10

    Total fixed cost = $16.40

    Where did I go wrong? :(

  10. avatarTemperance says

    Help!I’m sooo close to screaming lol ok. I can’t seem to get the correct answer i.e. (D). This is what I did :

    Cost Centers
    Allocated app o/h = 88,000 (x)
    Product M (2.5/5.5 x 88,000) 40,000 (x)
    Total o/h in cost center x = 128,000

    Allocated app o/h = 96,000 (y)

    Product M 2/3 x 96,000 = 64,000
    Total o/h in cost center (y) = 160,000

    Total No. hours in X = 8000 X 2.5 = 20,000 therefore :
    Fixed Cost per unit = 128,000/20,000 = $6.40

    Total No. hours in Y = 8000 X 2 = 16,000 therefore :
    Fixed Cost per unit = 160,00/160,000 = $10

    Total fixed cost = $16.40

    Where did I go wrong? :(

  11. avatar says

    Hi Mr Moffat
    I was going through the revision notes downloaded from open tuition website. Can you please explain me a point on below question.

    OVERHEAD ALLOCATION AND ABSORPTION
    Jones Ltd has allocated overheads between departments as follows:
    Dept $
    A 336,000
    B 210,000
    Repairs 42,000
    Maintenance 28,000
    In addition there are general overheads of $308,000 which should be apportioned:
    A: 40%; B: 30%; Repairs: 20%; Maintenance: 10%.
    A & B are production departments. The repairs and maintenance service production department as follows:
    A B Repairs Maintenance
    Repairs 60% 40% – –
    Maintenance 40% 40% 20% –

    Budgeted labour hours:
    A: 40,000 hrs; B: 8,000 hrs
    Budgeted machine hours:
    A: 5,000hrs; B: 60,000 hrs

    Why is it A has been calculated on Labour hours and B is calculated on Machine hours. This is how the workings are shown on Answers.

  12. avatar says

    Hi,

    I’ve worked out the answer to Question 6, ch 7 on pg 44 of the notes and I dont seem to come out with the correct answer. I reapportion Stores and Maintenance a few times to Production Depts 1 and 2 and I come out with a number 27 903 at the end for Dept 1. I’ve done it a few times but not come to the correct figure it gives on the answer. Any ideas how best I can check what I’m doing wrong?

    Thanks so much for your help.

    • Profile photo of John Moffat says

      I assume that you mean production department X?

      If so, then the answer cannot possibly be 27903, because there is already 70,000 overheads in department X even before we start apportioning extra from the service departments :-)

      Without seeing your answer it is impossible for me to tell you where you went wrong. However if you look at the back of the notes there is the full answer (done both ways – repeated distribution and algebra) and so you should be able to check there.

      • Profile photo of John Moffat says

        Sorry – I got confused :-(

        It is a bit difficult to write up the full answer on here, because the tabbing does not work here.

        Anyway, this should help you check:

        If you recharge stores first, then 3780 goes to dept 1 and 630 goes to Maintenance. ( I am not going to bother typing what goes to dept 2 because it is irrelevant)

        That gives a total now on Maint of 9080.
        If you recharge this then 6810 goes to dept 1 and 454 to stores

        If you recharge this 454 from stores, then 272 goes to 1, and 45 goes to Maint

        If you recharge this 45 from Maint, then 34 goes to 1 and 2 goes to Stores

        This 2 is recharged to 1.

        So the total to dept 1 is 17500 + 3780 + 6810 + 272 + 34 + 2 = 28398

        :-)

      • avatar says

        Thank you so much! I made one silly mistake in recharging Stores – so that was definitely a worthwhile exercise to see how careful one needs to be! Thanks so much I really appreciate it.

    • Profile photo of John Moffat says

      The material is 300 and the labour is 400, and so the prime cost is 700.

      Non-production overheads are absorbed at 120% of prime cost, and so they are 120% x 700 = 840.

      Production overheads are 26 per hour. Because the total labour cost is 400, and labour is paid 8 per hour, it means that there must be 400/8 = 50 hours of labour. So…..production overheads are 50 hours x 26 = 1300.

      So…..the total cost is 300 (material) + 400 (labour) + 1300 (production overheads) + 840 (non-production overheads) = 2840.

  13. avatar says

    Dear Sir, PLease explained below where we got the Reapportion J 9540
    A Factory consist two department cost centres (G and H) and two service cost centres (J and K).The total overheads alocated and aportioned to each centre are as follows:
    G H J K
    $40000 $ 50000 $30000 18000
    G H J K
    The percentage of service cost centre J to 30% 70% – –
    The percentage service cost centre K to 50% 40% 10% –
    The company apportions service cost centre costs to production cost centres using method that fully regconises any work by one service cost centre for another.
    What are the total overheads for production cost centre G after the reapportionment of all service costre costs?
    THe answer is $58540 where got the sum $9540?

    • Profile photo of John Moffat says

      recharging K means that 9000 (50% x 18000) goes to G, and 1800 (10% x 18000) goes to J.

      The total on J now is 31800 (30000 + 1800) and 30% of this goes to K. 30% x 31800 = 9540

      So the total on K is 40000 (already there) + 9000 (from the first line of this answer) + 9540 (from the second line of this answer).
      The total comes to 58540

      • avatar says

        But surely since K has already been recharged you cant include the 40000 again – otherwise it’s like double-counting? is that not correct?

      • Profile photo of John Moffat says

        Sorry – I meant to type G in the third line of my reply, and not K.

        The total for G is the 40,000 that is already there, plus 9,000 (recharged from K) plus 9,540 from J.

        Sorry about that :-(

        The question asks for the total for G, which is 58540.

    • Profile photo of John Moffat says

      There is already 95,000 for centre A.

      In addition there is 30% of the work done by Y, so that means an extra 30% x 30000 = 9000.

      Also, 10% of Y’s work is for X which means that the total for X is 46000 + (10% x 30000) = 49000

      X does 50% of its work for A, so that means we need to give A 50% x 49000 = 24500.

      So….the total for A is 95000 + 9000 + 24500 = 128500

      Hope that helps :-)

    • Profile photo of John Moffat says

      @marembon, the correct answer is C

      If S = stores and M = maintenance, then:

      S = 6300 + 0.05M
      M = 8450 + 0.10S

      Substituting for M in the first equation,
      S = 6300 + 0.05 (8450 + 0.10S)
      = 6300 + 422.5 + 0.005S
      So 0.995S = 6722.5
      S = 6756
      Substituting for S in the second equation, M = 8450 + 0.10 x 6756 = 9126

      So, the total for Department 1 is: 17,500 + (0.60 x 6756) + (0.75 x 9126)
      = 28398

    • Profile photo of John Moffat says

      @denzyboo, The total hours in X are (8000 x 3.0) + (8000 x 2.5) = 44.000.
      The total overhead in X is $88000, so overheads per hour are $2.

      If you do the same for Y, there are 24,000 hours and so the overheads per hour are $96,000 / 24,000 = $4.

      Product M used 2.5 hours of X (at $2 per hour) and 2.0 hours of Y (at $4 per hour).
      So total for a unit of M is (2.5 x $2) + (2.0 x $4) = $13.

    • Profile photo of John Moffat says

      @hixam, Materials and labour total $700 and so the prime cost is $700. Non-production overheads are absorbed at 120% of prime cost which is 120% x 700 = $840.

      Because the total labour cost is 400 and labour is paid 8 per hour, it means the the number of labour hours is 400/8 = 50. Production overheads are absorbed at $26 per labour hour and so the total production overheads are 50 x 26 = $1300.

      So….total cost is: Materials 300 + Labour 400 + production overheads 1300 + non-production overheads 840 = $2840

  14. avatar says

    hellow idil. well let me try my best to make it easier, 0.03S when you take it to other side of the equation it will be -0.03S (it will take minus sign). therefore deduct this from S ( dont forget that S is associated with number 1, so it is 1S). the equation will be like this S – 0.03= 0.97S.
    I hope you understand it.

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