Accounting for overheads part 2 – ACCA Management Accounting (MA)
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Isn’t factory heat a variable production overhead? the more units we produce, the more factory heat there will be.
If that were the case there would not be a cost of heating the factory!!
It is the cost of keeping the factory warm for the workers.
why did we not split factory heat on the basis of net book value of equipment of the 3 departments?
Why should the cost of heating the factory depend on the value of the equipment??
HI Prof,
Ref point: 4:52
“Factory Heat” coes under Cubic metres space. I thought it should be equipment coz removing factory heat must’ve used some equipment?
what do we do if we are unsure on which “heading” should our chosen sub-heading be? Factory heat was quite unknown to my thesaurus
thank you so much for your amazing lectures!
Factory heat is the cost of heating the factory 馃檪
Hi Prof,
Thanks for this amazing lecture.
I have a question though. When apportioning the overheads of the canteen, why don’t we include the 10 employees working in the canteen? Isn’t it obvious that the canteen feeds the entire factory( Including employees from packing, processing and the canteen itself)
Reference Point: 12:52
The cost of feeding the workers in the canteen is part of the costs of the canteen.
is variable costs of factory employees a fixed overhead or variable overhead?
welfare costs of factory employees*
Watch part (3) of the lectures on this topic. Then if you are still not sure ask your questions in the Paper MA Ask the Tutor Forum.
Thank you for the lecture
Hi john,
Firstly, thanks for the great help.
I have a question that when we calculate depreciation part why we divide processing dept NBV to total net book value…why we didn’t divide it by total cast like we did in factory rent and heat?
Please reply thanks.
I am guessing that instead of ‘cast’ you meant ‘cubic space’. If so, the for rent and heat you would expect (on the information available in the question) that the bigger the space then the more the cost of renting and heating.
However for the cost of depreciating the equipment, having a bigger space does not mean there is more equipment – you could have a small area with a lot of equipment in it and a large area with very little equipment in it. So it makes more sense to apportion the cost on the basis of the value of the equipment.
Hi john,
I understand this part. I think there is mis understanding my question was when we calculate rent and heat, we divide cubic by total production overhead cost( which is 80,000), but in case of depreciation we devide net book value of each department by total net book value, why is that like this?
We apportion the depreciation in the same ratios as the value of the machines in each department. With rent and heat we are doing the same thing but apportioning in the same ratios as the cubic space in each department.
My question is why calculating canteen cost with other departments instead or taking total 90 staff of two departments why didnt we take 100 total of three departments?
!0 of them work in the canteen and so the cost of them is part of the canteen cost.
We are charging the cost to the production departments and they employ 90 people.
Could we have a look at how many hours were used in each department and work out an absorption rate for each…finding that part difficult ?
But that is what I do in the example. I calculate an hourly absorption rate for each of the production departments.
Good day Sir, I understand how everything is done but I don’t understand why. Why would we want to allocate the overheads? If we could just use the overhead total as we did before to place on the cost card.
We need the overheads per unit in order to get the cost per unit (which we need for the valuation of inventory and for helping determine what selling price to charge).
Okay, Thank you.
You are welcome 馃檪
Fabulous lecture as always. I always feel intimidated by reapportioning, but this made me feel even somewhat confident. 馃檪
Thank you for your comment 馃檪
thanks
You are welcome 馃檪
Hello John, Excellent lecture and so well explained! I have a question please, why was 1/7 of depreciation charges apportioned to the canteen dept?
Regards, Shazia.
Because the value of the machines in the canteen is 1/7 of the total value of all of the machine.
Mr Moffat , thank you so much ! great lecture !
interesting watching you lecture..thanks so much
And thank you for your comment 馃檪
Hi John,Firstly thanks for explaining all topics so well!
I had a doubt regarding the way factory heating charges were divided between the three departments.Since factory heat is mostly affected by machinery and equipments the division should be in the proportion of NBV equipments and not cubic space,right ?
But we are apportioning the cost of providing heat, which is different from whatever heat is generated by the machines. Also, although the machine may well generate heat it is very unlikely for the heat generated to be dependent on the value of the machines.
However, don’t worry because exam questions make it perfectly clear which to use 馃檪
Thank you Sir.
You are welcome 馃檪
hi…i don’t understand why PROCESSING 50/90000 X 21062 is equal to = 11701 instead of 11,701? same with packing.
We are multiplying by 50/90, not 50/90,000 !! (There are 90 employees in total in the two departments)
the cost of canteen is apportion on the number of employees, why you directly apportion to canteen dept. ?
We apportion between all departments. Then we reapportion any service departments to the production departments.
Hey John. Love your work, just had a question about example 4 where the heating rent was being apportioned. Why did you round off on packing but not on the canteen’s share of rent?
It doesn’t matter which one you round off (because later when you divide by the number of units and work to the nearest cent, it makes no difference).