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Exercise 11

Dunstan Ltd's overhead analysis sheet details the budgeted expenses for manufacturing tents and sleeping bags, including indirect wages, consumable materials, and plant depreciation. The document outlines the allocation of costs to service and production cost centers, utilizing the step-down method for reallocating service costs. Additionally, it calculates overhead absorption rates based on both machine hours and direct labor hours for the production units.

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2 views

Exercise 11

Dunstan Ltd's overhead analysis sheet details the budgeted expenses for manufacturing tents and sleeping bags, including indirect wages, consumable materials, and plant depreciation. The document outlines the allocation of costs to service and production cost centers, utilizing the step-down method for reallocating service costs. Additionally, it calculates overhead absorption rates based on both machine hours and direct labor hours for the production units.

Uploaded by

Feivel KG
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Exercise 11: Overhead analysis sheet and calculation of overhead rates

Dunstan Ltd manufactures tents and sleeping bags in three separate production
departments. The principal manufacturing processes consist of cutting material in the
pattern cutting room and sewing the material in either the tent or sleeping bag
departments. For the year to 31 July cost centre expenses and other relevant
information are budgeted as follows:

Total Raw material Canteen Mainten- Cutting Tents Sleeping


(€) stores (€) (€) ance (€) room (€) (€) bags (€)
Indirect wages 147.200 41.200 15.000 45.000 6.400 19.500 20.100
Consumable
54.600  18.700 24.200 5.300 4.100 2.300
materials
Plant depreciation 84.200 2.500 3.400 5.000 31.200 17.500 24.600
Power 31.700
Heat and light 13.800
Rent and rates 14.400
Building insurance 13.500
Floor area (sq. ft) 30.000 1.500 2.500 1.000 8.000 10.000 7.000
Estimated
100 3 8 2 17 38 32
power usage (%)
Direct labour (hours) 112.000    7.000 48.000 57.000
Machine usage
87.000    2.000 40.000 45.000
(hours)
Value of raw
100   12.5 62.5 12.5 12.5
material issues (%)

1. Please prepare an overhead analysis sheet. Based on the information provided,


use the allocation bases, which you consider most appropriate, when allocating
cost to cost centers. For the reallocation of costs assigned to service cost centers
to production cost centers use the step-down method (using the given sequence).
2. For each of the three production units, calculate the overhead absorption rates (aka
manufacturing overhead rates) twice: once based on machine hours and once
based on direct labor hours.
Source: Drury
Overhead analysis sheet
Service Production
Main- Sleeping
Total (€) Stores (€) Canteen (€) Cutting (€) Tents (€)
tenance (€) bags (€)
Indirect wages 147.200 41.200 15.000 45.000 6.400 19.500 20.100
Consumable materials 54.600 18.700 24.200 5.300 4.100 2.300
Plant depreciation 84.200 2.500 3.400 5.000 31.200 17.500 24.600
Power 31.700
Heat and light 13.800
Rent and rates 14.400
Building insurance 13.500

359.400

Reapportionment:
Stores
Canteen
Maintenance

359.400 0 0 0

Machine hours 87.000 2.000 40.000 45.000


Labor hours 112.000 7.000 48.000 57.000

Machine hour rate


Overheads per labor
hour
Overhead analysis sheet
Service Production
Main- Sleeping
Total (€) Stores (€) Canteen (€) Cutting (€) Tents (€)
tenance (€) bags (€)
Indirect wages 147.200 41.200 15.000 45.000 6.400 19.500 20.100
Consumable materials 54.600 18.700 24.200 5.300 4.100 2.300
Plant depreciation 84.200 2.500 3.400 5.000 31.200 17.500 24.600
Power (a) 31.700 951 2.536 634 5.389 12.046 10.144
Heat and light (b) 13.800 690 1.150 460 3.680 4.600 3.220
Rent and rates (b) 14.400 720 1.200 480 3.840 4.800 3.360
Building insurance (b) 13.500 675 1.125 450 3.600 4.500 3.150

359.400 46.736 43.111 76.224 59.409 67.046 66.874

Reapportionment:
Stores (c) (46.736) 5.842 29.210 5.842 5.842
Canteen (d) (43.111) 2.694 18.476 21.941
Maintenance (e) (82.066) 1.887 37.731 42.448

359.400 0 0 0 93.200 129.095 137.105

Machine hours 87.000 2.000 40.000 45.000


Labor hours 112.000 7.000 48.000 57.000

Machine hour rate € 46.60 € 3.23 € 3.05


Overheads per labor
€ 13.31 € 2.69 € 2.41
hour

Bases of apportionment: (a) estimated power usage; (b) area; (c) value of issues;
(d) direct labour hours; (e) machine hours. Actual basis for other costs.

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