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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