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1 Unit Additional Overhead Question

management accounting

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9 views

1 Unit Additional Overhead Question

management accounting

Uploaded by

janessadobson1
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Additional Overhead question

Question 1
Value Fruit Ltd is preparing its overhead budgets for the December 2015 period. The entity
makes a product that passes through three production department and is also affected by two
service departments. The three production departments are milling, processing and
packaging, and two service departments are stores and inspections.

The following budgeted overheads and budgeted activity levels have been produced:
Milling Processing Packaging Stores Inspections
Overhead cost $1,500,000 $1,800,000 $3,150,000 $1,200,000 $800,000
Machine hours 250,000 220,000 400,000

Overhead is absorbed on a machine hour basis.

It has been estimated that service department usage is as follows:


Milling Processing Packaging Stores Inspection
Stores 25% 35% 20% - 20%
Inspections 40% 20% 30% 10% -

However, during the period ended December 31, 2015, actual overheads in department
milling, processing and packaging were as follow respectively: $1,450,000, $1,950,000 and
$3,500,000; while, actual activity levels for all three were 250,000, 285,000 and 390,000
machine hours for milling, processing and packaging respectively.

Required:
a. Use the reciprocal (simultaneous equation) method to derive the re-allocated
overheads to production departments and derive the overhead absorption rates for
these departments

b. From the information calculate in part (a) above, derive the under/under absorption of
overheads in each departments

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