1. avatar 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 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

      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.


      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)).

Leave a Reply