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Accounting for overhead

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting for overhead

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 24, 2020 at 10:10 am #569129
    rayhwlam
    Member
    • Topics: 6
    • Replies: 5
    • ☆

    The information given below relates to the forthcoming period for a manufacturer’s operation.
    There are four cost centers of which two are involved in production and two are service cost
    centers.

    …………………………………………………..Production……………Service
    ………………………………Total……..Machining……Assembly……Canteen………Stores
    ………………………………….$……………..$………………..$………………$……………….$
    Allocated costs………..70,022………21,328………29,928……….8,437…………..10,329
    Other costs
    Rent and rates………….4,641
    Buildings insurance…..3,713
    Electricity and gas…….6,800………………………………..Table 1
    Plant depreciation…….28,390
    Plant insurance………….8,517
    …………………………….._______
    ………………….Total……122,083
    …………………………….._______

    Area occupied (square metres)……7,735………….6,188……….1,547…………..3,094
    Plant at cost ($’000)……………………1,845…………..852……………—……………..142
    Number of employees…………………600……………..300……………30………………70
    Machine hours…………………………..27,200………….800…………..—……………….—
    Direct labor hours………………………6,800…………18,000…………—……………….—
    Number of stores requisitions…….27,400………….3,400………….—………………—

    a. Complete the above table 1 by using the most appropriate base.

    My answer:

    ………………………………..Total……..Machining……Assembly……Canteen………Stores
    Allocated costs……………70,022………21,328………29,928………8,437………..10,329
    Rent and rates…………….4,641………….1934………..1547…………387……………773
    Buildings insurance………3,713…………1547………..1238…………309…………….619
    Electricity and gas………..6,800…………2833………..2267…………567……………1133
    ———————————
    Plant depreciation……….28,390……….18,450………..8,520……….—…………..1,420
    Plant insurance…………….8,517……….5535………….2,556…………—…………….426
    ……………………………
    ……………………….Total…….122,083……51,627………46,056………9,700………14,700
    Apportion Canteen…………………………..6000…………3000……….(9,700)………..700
    Apportion Stores…………………………….13700………..1700………—…………….(15400)
    ———————————-
    ……………………….Total……………………..71,327………50,756

    My questions: is it correct?

    (b). Use this information to calculate a production overhead absorption rate for Machining
    department and for Assembly department based on machine hours and labor hours
    respectively. Round off to nearest dollars for the above table.

    My questions:

    Does the Allocated costs in the question means the fixed overhead? In the textbook, there are material cost, labour cost etc but there is none here, how could I calculate (b)?

    Thanks a lot for your help.

    April 25, 2020 at 10:42 am #569189
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    Your answer looks correct, but I do not have time to check each specific figure. (Surely you have an answer in the same book in which you found the question?)

    Allocated costs are those costs directly allocated to each departments (i.e. specifically incurred in the department whether fixed or variable) whereas the other costs all need apportioning (i.e. sharing) between the departments.

    Materials and labour are irrelevant because you are not being asked to calculate a cost per unit. You are being asked to calculate the absorption rate for overheads.

    All of this is explained in detail in my free lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.

    April 25, 2020 at 2:56 pm #569215
    rayhwlam
    Member
    • Topics: 6
    • Replies: 5
    • ☆

    For (b)

    is it

    Production overhead absorption rate for Machining department:
    71,327/27,200 = $2.62/machine hour
    Production overhead absorption rate for Assembly department:
    50,756/18,000= $2.82/direct labour hour

    Thanks you John.

    April 25, 2020 at 6:21 pm #569229
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    You are welcome 🙂

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