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The Isis Engineering Company Operates A Job Order Costing System Which

The Isis Engineering Company uses a job order costing system with predetermined overhead rates. It has two production cost centers and two service cost centers. Overhead is allocated to production cost centers using direct labor hour rates. General factory overhead and service center costs are allocated to production and service centers based on floor space, personnel, and service usage. The company revises overhead rates annually using prior year results and next year's forecasts. It must recalculate the rates, considering reciprocal service costs between service centers, to properly allocate overhead.

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47 views

The Isis Engineering Company Operates A Job Order Costing System Which

The Isis Engineering Company uses a job order costing system with predetermined overhead rates. It has two production cost centers and two service cost centers. Overhead is allocated to production cost centers using direct labor hour rates. General factory overhead and service center costs are allocated to production and service centers based on floor space, personnel, and service usage. The company revises overhead rates annually using prior year results and next year's forecasts. It must recalculate the rates, considering reciprocal service costs between service centers, to properly allocate overhead.

Uploaded by

Amit Pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Solved: The Isis Engineering Company operates a job

order costing system which


The Isis Engineering Company operates a job order costing system which

The Isis Engineering Company operates a job-order costing system which includes the use of
predetermined overhead absorption rates. The company has two service cost centres and two
production cost centres. The production cost centre overheads are charged to jobs via direct
labour hour rates which are currently £3.10 per hour in production cost centre A and £11.00 per
hour in production cost centre B. The calculations involved in determining these rates have
excluded any consideration of the services that are provided by each service cost centre to the
other.

The bases used to charge general factory overhead and service cost centre expenses to the
production cost centres are as follows:

(i) General factory overhead is apportioned on the basis of the floor area used by each of the
production and service cost centres,

(ii) The expenses of service cost centre 1 are charged out on the basis of the number of
personnel in each production cost centre.

(iii) The expenses of service cost centre 2 are charged out on the basis of the usage of its
services by each production cost centre.

The company's overhead absorption rates are revised annually prior to the beginning of each
year, using an analysis of the outcome of the current year and the draft plans and forecasts for

the forthcoming year. The revised rates for next year are to be based on the following data:

(a) Ignoring the question of reciprocal charges between the service cost centres, you are
required to calculate the revised overhead absorption rates for the two production cost centres.
Use the company's established procedures.

(b) Comment on the extent of the differences between the current overhead absorption rates
and those you have calculated in your answer to (a). Set out the likely reasons for these
differences.

(c) Each service cost centre provides services to the other. Recalculate next year's overhead
absorption rates, recognizing the existence of such reciprocal services and assuming that they
can be measured on the same bases as those used to allocate costs to the production cost
centres

Reach out to [email protected] for enquiry.


(d) Assume that:

(i) General factory overhead is a fixed cost.

(ii) Service cost centre 1 is concerned with inspection and quality control, with its budgeted
expenses (before any reallocations) being 10 per cent fixed and 90 per cent

variable.

(iii) Service cost centre 2 is the company's plant maintenance section, with its budgeted
expenses (before any reallocations) being 90 per cent fixed and 10 per cent variable.

(iv) Production cost centre A is labour-intensive, with its budgeted overhead (before any
reallocation) being 90 per cent fixed and 10 per cent variable.

(v) Production cost centre B is highly mechanized, with its budgeted overhead (before any
reallocations) being 20 per cent fixed and 80 per cent variable. In the light of these
assumptions, comment on the cost apportionment and absorption calculations made in parts (a)
and (c) and suggest any improvements that you would consider appropriate.

The Isis Engineering Company operates a job order costing system which

ANSWER
https://solvedquest.com/the-isis-engineering-company-operates-a-job-order-costing-system-
which/

Reach out to [email protected] for enquiry.


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