Information for Financial Managers (Apportionment, Absorbtion)

John Smith owns a small manufacturing firm, Smith’s Spoons, which
produces wooden spoons. The production overhead budgets have been
prepared. Cost centre expenses and related information have been
budgeted as follows:

Total Machine Shop A Machine Shop B Assembly Canteen Maintenance

Indirect Wages Ј 78,560 8,568 9,190 15,674 29,650 15,460

Consumable materials(incl. Maintenance) Ј 16,900 6,400 8,700 1,200 600
-

Rent and Rates Ј 16,700





Buildings Insurance Ј 2,400





Power Ј 8,600





Heat and Light Ј 3,400





Depreciation of Machinery Ј 40,200





Area (m2) 45,000 10,000 12,000 15,000 6,000 2,000

Value Of Machinery Ј 402,000 201,000 179,000 22,000 - -

Power Usage: Technical Estimates (%) 100 55 40 3 - 2

Direct Labour (Hours) 35,000 8,000 6,200 20,800 - -

Machine Usage (Hours) 25,200 7,200 18,000 - - -

Units Of Production 20,000







Required

Determine budgeted overhead absorption rates for each of the production
departments, using bases of apportionment and absorption that you
consider most appropriate from the information provided.

If actual activity is as follows:

Machine Shop A Machine Shop B Assembly

Direct labour hours 8,200 6,500 21,900

Machine usage hours 73,00 18700 -

Overheads 68,200 52,150 46,592



Calculate the amount of under/over-absorption of production overheads
for all three cost centres, giving reasons for any under/over absorption
of the overheads.