set
five
QUESTION ONE
Bigdaddy Designs Ltd. has two production
departments and two service departments. Production overheads for the year
ending 31st December 2013 are expected to be as follows:
Overhead
|
Tshs.
|
Rent and rates
|
15,200
|
Lighting and Heating
|
12,160
|
Depreciation of Machinery
|
14,000
|
Insurance of Machinery
|
3,500
|
Supervisors salary
|
15,200
|
Insurance - Premises
|
7,600
|
The following information is also available:
Production Depts.
|
Service Depts.
|
Total
|
|||
Machining
|
Finishing
|
Stores
|
Maintenance
|
||
Floor Area
|
400
|
300
|
100
|
150
|
950
|
Number of production staff
|
9
|
7
|
-
|
-
|
16
|
Value of Machinery (Tshs.000)
|
15
|
10
|
4
|
6
|
35
|
Each member of the production team is expected to work 38 hours per
week for 48 weeks during 2013.
|
|||||
You are required to:
(a) Prepare an overhead apportionment schedule
for the year ended 31st December 2013, clearing indicating the basis
of apportionment for each overhead.
(b)
Re-apportion
the service departments overheads as follows:
Machining Finishing
Stores 60% 40%
Maintenance 50% 50%
(c)
Calculate
overhead absorption rates for the Machining and Finishing Departments for the
year ending 31st December 2013 based on respective labour hours per
department.
QUESTION TWO
PAKIDUNDA
Ltd is preparing it’s departmental budgets and product cost estimates for the
year ending 31st December 2013. The company has three manufacturing
departments- Machining, Assembly and Finishing - and one service department
Maintenance. The following costs and related data have been estimated for year
ended 31st December 2013.
Production
Departments
|
Service
Department
|
||||
Cost
|
Machining
|
Assembly
|
Finishing
|
Maintenance
|
Total
|
Direct Wages
|
60,000
|
32,000
|
72,000
|
0
|
164,000
|
Indirect Wages
|
10,000
|
6,000
|
8,000
|
30,000
|
54,000
|
Direct Materials
|
80,000
|
10,000
|
4,000
|
0
|
92,000
|
Indirect Materials
|
15,000
|
4,000
|
8,000
|
20,000
|
47,000
|
Depreciation
|
7,000
|
||||
Rent and Rates
|
25,000
|
||||
Light and Heat
|
10,000
|
||||
Personnel
|
15,000
|
||||
Other
information:
|
|||||
Direct labour Hours
|
12,000
|
5,000
|
16,000
|
6,000
|
39,000
|
Machine Hours
|
38,000
|
8,000
|
4,000
|
50,000
|
|
Employees
|
6
|
4
|
8
|
2
|
20
|
Floor Area
|
1000
|
400
|
300
|
300
|
2,000
|
NBV of Non Current Assets
|
20,000
|
8,000
|
3,000
|
4,000
|
35,000
|
You are
required to:
(a) Prepare an overhead apportionment schedule for the year ended 31st
December 2012, clearing indicating the basis of apportionment for each overhead.
(b) Re-apportion the Maintenance Department Overheads as follows:
Machining 60%
Assembly 25%
Finishing 15%
(c) Calculate appropriate overhead absorption rates for the machining, assembly
and finishing departments, using the dominant activity in each department as
the absorption base
Solution
As per lecture notice
QUESTION THREE
Azam Products uses a predetermined overhead application rate of Tshs.1,800
per labor hour. A review of the company's
accounting records revealed budgeted manufacturing overhead for the period of Tshs.62,100,000,
applied manufacturing overhead of Tshs.59,040,000 and overapplied overhead of Tshs.1,190,000.
Required:
i)
Determine
Kent's actual labor hours, budgeted labor hours, and actual manufacturing
overhead.
ii)
Present
the necessary year-end journal entry to handle the overapplied overhead,
assuming that the firm allocates over- or underapplied overhead to Cost of
Goods Sold
QUESTION FOUR
Packard Products uses a job-costing system for its units, which
pass from the Machining Department, to the Assembly Department, to
finished-goods inventory. The Machining
Department is heavily automated; in contrast, the Assembly Department performs
a number of manual-assembly activities.
The following information relates to the Machining Department for the
year just ended:
Budgeted manufacturing overhead
|
Tshs.8,000,000
|
Actual manufacturing overhead
|
7,975,000
|
Budgeted machine hours
|
500,000
|
Actual machine hours
|
510,000
|
The
Machining Department data that follow pertain to job no. 243, the only job in
production at year-end.
Direct materials
|
Tshs.64,800
|
Direct labor cost
|
35,200
|
Machine hours
|
450
|
Required:
(a) Assuming the use of normal costing,
calculate the predetermined overhead rate that is used in the Machining
Department.
(b) Compute the cost of the Machining
Department's year-end work-in-process inventory.
(c) Determine whether overhead was under- or
overapplied during the year in the Machining Department.
(d) If Packard disposes of the Machining
Department's under- or overapplied overhead as an adjustment to Cost of Goods
Sold, would the company's Cost-of-Goods-Sold account increase or decrease? Explain.
(e) How much overhead would have been charged
to the Machining Department's Work-in-Process account during the year?
(f) Comment on the appropriateness of direct
labor cost to apply manufacturing overhead in the Assembly Department.
QUESTION FIVE
TUSUUPE Corp.
operates two producing departments, C and D, and two service departments, E and
F. The overhead before allocation of
service department costs, together with the usage of services from the service
departments, is:
Overhead
Before
Allocation
of Service Services Provided
by
Department Department
Costs E F
Producing:
C................................................................ Tshs.18,000 30% ‑-
D................................................................ 29,000 30% 80%
Service:
E................................................................ 8,000 -‑
20%
F.................................................................
1,400 40% ‑-
Tshs.56,400
Required: Prepare the overhead distribution, using the
simultaneous method to allocate the service departments' costs to the producing
departments.
QUESTION SIX
MDOBOKE Co.
operates with three producing departments (Cutting, Dividing, and Shelling that
are serviced by two service departments Equipment Maintenance and General
Plant). Costs are allocated using the
step method with the service department servicing the greatest number of other
departments allocated first. General
Plant is allocated on the basis of square footage and Equipment Maintenance is
allocated on the basis of direct labor hours.
Relevant May data are:
Producing
Departments Service
Departments
Equipment General
Cutting Dividing Shelling Maintenance Plant
Overhead before
allocation of service
department costs....................... Tshs.105,000 Tshs.93,000 Tshs.87,000 Tshs.56,000 Tshs.30,000
Square footage.................................... 8,000 12,000 6,000 4,000 ‑-
Machine hours used............................ 6,000 2,000 7,000 ‑- ‑-
Direct labor used................................. 5,000 6,000 9,000 ‑- ‑-
Required: Prepare a schedule indicating the allocation
of service department costs to producing departments and the rate per machine
hour for applying overhead in each producing department. (Round to the nearest cent.)
SOLUTION
Producing
Departments Service
Departments
Equipment General
Cutting Dividing Shelling Maintenance
Plant
Overhead before
allocation of service
department costs........................ Tshs.105,000 Tshs.93,000 Tshs.
87,000 Tshs.56,000 Tshs.30,000
Allocation of service
department costs:
General Plant:
8,000
‑--‑‑‑‑‑‑ x Tshs.30,000.......................... 8,000 ‑- -‑ -‑
(8,000)
30,000
12,000
‑-‑‑-‑‑‑‑ x Tshs.30,000................................ -‑ 12,000 ‑- -‑ (12,000)
30,000
6,000
‑‑‑‑‑--‑‑ x Tshs.30,000................................ -‑ ‑- 6,000 -‑
(6,000)
30,000
4,000
‑‑‑‑‑‑--‑ x Tshs.30,000................................ -‑ ‑- ‑- 4,000
(4,000)
30,000
Equipment Maintenance:
5,000
-‑‑‑‑‑‑-‑ x Tshs.60,000........................ 15,000 -- ‑- (15,000) ‑-
20,000
6,000
‑‑‑‑‑--‑‑ x Tshs.60,000................................ -‑ 18,000 -‑ (18,000) ‑-
20,000
9,000
‑‑‑--‑‑‑‑ x Tshs.60,000....................... -‑ ‑- 27,000 (27,000) ‑-
20,000
Total overhead................................ Tshs.128,000 Tshs.123,000 Tshs.120,000
Machine hours..................................... 6,000 2,000 7,000
Overhead application rate............... Tshs.21.33 Tshs.61.50 17.14
QUESTION SEVEN
Mkali
wa Trigonometric Inc. has three
producing departments (Sine, Cosine, and Tangent) and two service departments
(Rhombus and Triangle). Data that
summarize overhead activity for January are:
Producing
Departments Service
Departments
Sine Cosine Tangent Rhombus Triangle
Total overhead before service
department allocations.............. Tshs.50,000 Tshs.80,000 Tshs.30,000 Tshs.40,000 Tshs.20,000
Square footage
occupied........................................ 3,000 4,000 3,000 1,000 1,500
Number of employees.............................. 50 30 20 10 10
Rhombus costs are distributed on the basis of
square footage occupied, while Triangle costs are distributed on the basis of
number of employees. The direct method
is used for allocating service department costs to producing departments.
Required: Prepare a schedule indicating the
detailed components of overhead costs for the producing and service
departments, including the directly assigned and allocated overhead
SOLUTION
Producing
Departments Service
Departments
Sine Cosine Tangent Rhombus Triangle
Total overhead
before service
department
allocations Tshs.50,000 Tshs.
80,000 Tshs.30,000 Tshs.40,000
Tshs.20,000
Allocation of
Rhombus costs:
(Base = square
footage)
3,000
Sine: ‑-‑‑‑‑‑‑‑‑ x
Tshs.40,000........ 12,000 -‑ -‑ (12,000)
10,0001
4,000
Cosine: ‑‑‑‑‑--‑‑ x
Tshs.40,000.............. -‑ 16,000 -‑ (16,000)
10,000
3,000
Tangent: ‑‑--‑‑‑‑‑
x Tshs.40,000............ -- -‑ 12,000 (12,000)
10,000
Allocation of
Triangle costs:
(Base = number of
employees)
50
Sine: ‑--‑‑‑ x Tshs.20,000............ 10,000 -‑ -‑ (10,000)
1002
30
Cosine: ‑‑‑‑ x
Tshs.20,000.................... -‑ 6,000 -‑ (6,000)
100
20
Tangent: ‑-‑‑‑‑ x
Tshs.20,000........ -‑ -‑ 4,000 (4,000)
100
Total overhead................................ Tshs.72,000 Tshs.102,000 Tshs.46,000
1Denominator = 3,000 + 4,000 + 3,000 = 10,000 square feet
or 30% + 40% + 30%
2Denominator = 50 + 30 + 20 = 100 employees
or 50% + 30% + 20%
QUESTION EIGHT
(a) Explain
why predetermined overhead absorption rates are preferred to overhead
absorption rates calculated from factual information after the end of a
financial period.
(b) The
production overhead absorption rates of factories X and Y are calculated using
similar methods. However, the rate used by factory X is lower than that used by
factory Y. Both factories produce the same type of product. You are required to
discuss whether or not this can be taken to be a sign that factory X is more
efficient than factory Y.
(Refer
to Lecture Notes)
QUESTION NINE
JR Co.
Ltd’s budgeted overheads for the forthcoming period applicable to its production departments, are as follows:
(Tshs.000)
1 870
2 690
The budgeted total costs for the forthcoming period for
the service departments, are
as follows:
(Tshs.000)
G 160
H 82
The use made of each of the services has been estimated as
follows.
Production Service
department department
1 2 G H
G(%) 60 30 — 10
H(%) 50 30 20 —
Required:
Apportion the service department costs to production
departments:
(i) Using the
step-wise (elimination) method, starting with G;
(ii) Using the
reciprocal (simultaneous equation) method;
(iii) Commenting
briefly on your figures.
(Refer
to Lecture Notes)
QUESTION TEN
Critically consider the purpose of calculating production
overhead absorption rates.
(a) Specify
and explain the factors to be considered in determining whether to utilize a
single factory-wide recovery rate for all production overheads or a separate
rate for each cost centre, production or service department.
(b)
Describe three methods of determining fixed
overhead recovery rates and specify the circumstances under which each method
is superior to the other methods mentioned.
(Refer
to Lecture Notes)
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