15 COSTING


Sample Solution (a) Overhead to be Absorbed


Production Overhead


Depreciation Factory Factory Heating Factory Cleaning Factory Canteen


Base


Depreciation Equipment Book Value [1] Floor Area [1] Volume [1]


Floor Area [1] No. of Employees [1] [1] [1] [1] [1] [1]


20,000 24,000 10,000 2,000


[1] 68,000 [1] [1] [1] 12,000 [1]


8,000 4,800 3,125 400


[1] [1] [1] [1] 4,200 [1] 20,525 [1]


6,000 9,600 3,125 800


[1] [1] [1] Service


Total Dept. 1 Dept. 2 Dept. A Dept. B [1]


[1] 4,800 [1] 24,325 [1]


4,000 3,600 1,875 300


1,200 [1] 10,975 [1] [1] [1] [1] [1]


2,000 6,000 1,875 500


1,800 [1] 12,175


You do the same working for all.


Keep as a fraction rather than decimals when working out.


(b) Transfer Service Department Costs Production Total Cost


Apportionment Department A to Production


Apportionment Department B to Production


[2] [2]


Dept. 1 20,525 8,780


9,740 39,045 [2] [2]


Dept. 2 24,325 2,195


2,435 28,955 - Service


Dept. A 10,975


(10,975) (12,175) -


Dept. B 12,175


Don’t forget it is now


based on machine hours.


15


(c) Machine hour [4]


Department 1 [4] Department 2


(d) Re-apportionmentof Overheads[2]


:


Re-apportionment of overheads is when, for example, service department costs are re-apportioned (split up) between production departments because overheads can only be recovered by being included as part of the cost of production.


(e) Over-absorption of Overheads[2] :


Over-absorption is when costs are over recovered – budgeted costs are greater than actual costs. Profit will be greater than expected. For example a reduction in the cost of fuel that was not budgeted for.


224


TIP Note


TIP


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