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Tutorial question 4 Overheads Grayson Engineering Company produces and sells a single product Production takes place in two departments (the machine shop and the assembly department and production is supported by two service departments (stores department and administration department). The company uses a full overhead absorption costing system and at the start of each year, predetermined overhead absorption rates are calculated for each of the two production departments. The following information regarding overhead budgets is available at the start of the year Machine shop NS 70 000 Assembly dept NS 110 000 Stores NS SO 000 Administration NS 40 000 Overhead cost Total NS Indirect wages 270 000 Heating and lighting 90 000 Personnel costs 40 000 Machinery depreciation 120 000 Rent and rates 30 000 550 000 The following information is also available: dept Floor area (square metres) Number of employees Value of machinery (NS) Machine Assembly shop 8 000 3000 40 20 B0 000 20 000 Stores Administration 500 500 10 10 15 000 5 000 Grayson has analysed the work done by the two service departments for the other departments and the following is the result of that analysis: Stores Machine shop 505 SON Stores Dept Administration Dept Assembly dept 30% 30% Admin 10% 20N At the start of the year the following estimates were made for the number of labour hours and machine hours which would be worked within the two production departments: 10 000 Machine shop Assembly dept Labour hours 40 000 Machine hours 50 000 20000 Requirement: a) Calculate the predetermined overhead absorption rates, which would be used by the two production departments. You should use appropriate bases of apportionment and choose appropriate bases of absorption. The rates calculated must include allowance for reciprocal CS Scanned with CamScanner b) service department costs using either simultaneous equations or continuous allotment methods. The following costs and time were subsequently recorded for a particular piece of work (Job 97) during the year in question Machine shop N$100 N$ 70 Assembly dept N$200 N590 Direct labour Direct materials Machine hours Labour hours Calculate the total production cost of Job 97. c) Assuming that at the year end the following actual incurred costs and timings were ascertained, calculate the amount of under or over absorption of overheads for the two production departments and in each case identity and quantity the two causes of such under/over absorption Overhead costs (NS) Machine hours Labour hours Machine shop 352 050 49 800 11 200 Assembly dept 215 300 20 200 41 000 CS Scanned with CamScanner

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