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- This topic has 3 replies, 2 voices, and was last updated 10 months ago by Ken Garrett.
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- February 21, 2024 at 7:45 pm #700820
Hello sir
Hope this massage finds you well
Can you please assist me with this question MA1 chapter 7 (overhead costs)A business has two production departments, , assembly and polishing. One of the products made in these departments is the Stun. Details for these departments and the Stun are as follows:
For assembly cost center
Overhead 94800
Labour hours 20000
Machine hours 60000
Stun labour hour per unit 3 hour
Stun machine hour per unit 4 hourFor polishing cost center
Overhead 74800
Labour hours 40000
Machine hours 15000
Stun labour hour per unit 5 hour
Stun machine hour per unit 2 hourOverheads in the assembly department are to be absorbed on the basis of machine hours and in the polishing department on the basis of labour hours.
How much overhead in total would be included in the cost of a Stun?A. $3.45
B. $8.48
C. $10.06
D. $15.67Actually sir I correctly calculate the overhead obsorption rate for both polishing and assembly department
Which overhead obsorption rate for assembly department is 1.58$ per machine hour
And for polishing department it’s 1.87$ per labour hourBut when I calculate the overhead in total for stun I assume that stun take 4 machine hour in assembly department and also 2 machine hour in polishing department
So I multiply the 6 machine hour by 1.58
I make the same assumption for labour hours and multiply the 8 by 1.87$But book calculate like this
Overhead to be absorbed
Assembly $1.58 x 4 hours
Polishing $1.87 × 5 hoursWhat’s the logic behind this calculation
Thank you for your attention and I am sorry If it becomes too long
February 21, 2024 at 11:24 pm #700830Each unit in assembly takes 4 machine hours and each unit in polisking takes 5 labour hours.
In the assembly dept the absorption rate is 1.58 per machine hour so overheads in that department would be 4 x 1.58 per unit.
In the polishing dept the absorption rate is 1.87 per labour hour so overheads in that department would be 4 x 1.87.
Hence, overheads for a unit going through both departments in sequence amount to: 4 x 1.58 + 1.87 x 5.
February 22, 2024 at 9:10 am #700862I am sorry sir but I am still confused
We just ignore 3 labour hour of assembly department and 2 machine hour of polishing departmentFebruary 22, 2024 at 12:08 pm #700880Yes. If you decide to base your overhead absorption rate on, say labour hours then it is only labour hours you use to absorb in that department. Similarly, if you have an overhead absorption rate per machine hours, only machine hours are important when absorbing the overheads.
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