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Help please
Singer Industries produces music stands and microphones, which pass through two
production departments, Assembly and Finishing. Production is supervised by a
Quality Control Department, which is used by Assembly and Finishing in the ratio
(A:F) 10:90. Overheads are absorbed on a direct labour hour basis.
Use the following information to calculate the overhead absorption rate for each
department.
Assembly Finishing Quality control
Overheads $300,000 $200,000 $90,000
Direct labour hours 50,000 50,000 ?
Assembly Finishing
A $6.00 $4.00
B $6.18 $5.62
C $6.20 $5.60
D $6.90 $4.90
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Okay step by step to approach this question, firstly you know that quality control department is a service department right, so you need to share the overhead to production department(reapportionment) by using the ratio given, therefore $90000 x 10/100 = $9000 will be shared to Assembly department and $90000 x 90/100 = $81000 will be shared to Finishing department.
Next, add up the overhead for both production departments, Assembly department’s overhead = $300000 + $9000 = $309000, Finishing department’s overhead = $200000 + $81000 = $281000.
Next will of course be dividing the overhead for both departments with the direct labour hours for each departments (overheads are absorbed on a direct labour hour basis). So do as follow:
OAR for Assembly = $309000/50000 hours = $6.18
OAR for Finishing = $281000/50000 hours = $5.62
Answer will be B in this case, please do more practices on overhead topic 🙂
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