Question

11. The Accountant for APC Manufacturing Pty Ltd, a manufacturer of Sports
Wear has accumulated the following information related to the anticipated
overhead costs for the coming year.

		factory office	stores	assembly	finishing	total
dept overhead		$60,000	$15,000	$80,000	$45,000	$200,000
departmental information
plant value		$15,000	$35,000	$270,000	$80,000	$400,000
floor space(m2)		100	200	500	300	1,100
requisitions				60	40	100
No. of employees			22	55	33	110
direct labour hours				2,000	6,000	8,000
machine hours				12,650	2,350	15,000

The firm uses the direct method for re-allocation of service department
(Factory Office and Stores) costs to production departments (Assembly and
Finishing). The factory office would be reallocated to production departments
according to the service rendered to production departments as measured by
the number of employees in each production department. The stores would
be reallocated to production departments according to the service rendered
to production departments as measured by the number of materials
requisitions in each production department.
Required:
a. Determine department overhead rates based on (i) Machine hours
for Assembly and (ii) Direct Labour hours for Finishing. Show all the
workings in your answers. (Hints: You can use the following table to
answer this part of question.)
b. Compute a plant wide overhead rate based on Direct Labour hours. Show
all the workings in your answers.

Answer 1

Solution :

(a) Department OH Rate based on Machine Hour and Direct Labor Hours

	Factory Office	Stores	Assembly	Finishing
OH Before Allocation	$ 60,000	$ 15,000	$ 80,000	$ 45,000
Allocation :
Factory Office (55 : 33)	($ 60,000)		$ 37,500	$ 22,500
Stores (60:40)		($ 15,000)	$ 9,000	$ 6,000
Total			$ 126,500	$ 73,500
Machine Hours			12,650
Direct Labor Hours				6,000
OH Rate			$ 10	$ 12.25

(b) Plantwide OH Rate :

Total Overhead = $ 200,000

Total Direct Labor Hours = 8,000

OH Rate = Total Overhead / Total Direct Labor Hours

= $ 200,000 / 8,000

= $ 25 per Direct Labor Hour.

Please vote up and write your doubts in comment section. Would be glad to help you further.