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Question 1 Delta is an electronic company manufacturing different types of products. They have appointed a new management accountant who has explained about Overheads. "Overhead is the cost incurred in the course of making a product, providing a service or running a department, but cannot be traced directly and in full to the product or service." He also explained that there are different methods to deal with overheads to get the more accurate cost of product, which is very important to deal with competition. Delta Company has Two production departments (A, and B and two service departments (Service 1 and Service 2). The information about the budgeted cost as given as below: Overhead cost Rent and rates Machine Insurance Depreciation of machine Production supervisor's salary Heating and lighting Total (OMR) 12000 to 13000 (choose between) 5000 to 7000 ((choose between) 16000 22000 6200 The company has new premises, and all the departments are housed in this premises. The additional details about the production and service department are given below: Service 2 Base Department A Floor Area (Sq. meters 2000 Machine Value (OMR) 20000 Labour Hours 3000 Labour Rate per hour 3.80 (OMR) Service 1 70% Service 2 30% Department Service B 1 1000 600 8000 2000 1600 3.50 3.00 400 1000 4000 31000 4600 3.00 20% 10% Required: a) Prepare a statement showing the overhead cost for each production department showing the basis of apportionment used. 4 Marks b) Reapportion the overheads using the direct method of reapportionment. 2 Marks c) There are different ways to deal with the overhead; Absorption costing is a method of sharing overheads between different products on a fair basis. Discuss and Evaluate the Absorption costing procedure. 4 Marks

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