m Accounting for overheads

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Cory Virgil Richard
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$8,400 The overhead ost of the anteen is to be re-apportioned to the prodution ost entres on the basis of the number of employees in eah prodution ost entre.

1 QUESTIONS m ounting for overheads 48 mins 8.1 The following extrat of information is available onerning the four ost entres of EG Limited. Number of diret employees Number of indiret employees Overhead al loated and apportioned Prodution ost entres Mahinery Finishing Paking $28,500 $18,300 $8,960 Servie ost entre Canteen 4 $8,400 The overhead ost of the anteen is to be re-apportioned to the prodution ost entres on the basis of the number of employees in eah prodution ost entre. fter the re-apportionment, the tota l overhead ost of the paking department, to the nearest $, wi ll be $1,200 $9,968 $10,080 $10,160 The following information relates to questions 8.2 and 8.3 udgeted information re lating to two departments in a ompany for the next period is as fo llows. Prodution iret iret iret Mahine epartment overhead material ost labour ost labour hours hours $ $ $ 1 27,000 67,500 13,500 2,700 45, ,000 36, ,000 25, Individual diret labour employees within eah department earn differing rates of pay, aording to their skil ls, grade and experiene. 8.2 What is the most appropriate prodution overhead absorption rate for department 1? 40% of diret material ost 200% of diret labour ost $10 per diret labour hour $0.60 per mahine hour 8.3 What is the most appropriate prodution overhead absorption rate for department 2? 50% of diret material ost 18% of diret labour ost $0.72 per diret labour hour $60 per mahine hour 8.4 Whih of the following statements about predetermined overhead absorption rates are true? (i) (ii) (ii i) Using a predetermined absorption rate avoids flutuations in unit osts aused by abnormally high or low overhead expenditure or ativity levels Using a predetermined absorption rate offers the administrative onveniene of being able to reord fu ll prodution osts sooner Using a predetermined absorption rate avoids problems of under/over absorption of overheads beause a onstant overhead rate is available. (i) and (ii) only (i) and (iii) only (ii) and (iii) only ll of them

8.5 Over-absorbed overheads our when bsorbed overheads exeed atual overheads bsorbed overheads exeed budgeted overheads C tual overheads exeed absorbed overheads tual overheads exeed budgeted

Prodution Variable prodution overhead per unit Fixed prodution overheads Sales udget 8,000 units $3 $360,000 6,000 units tual 9,000 units $3 $432,000 8,000 units Overheads are absorbed using a rate

2 8.5 Over-absorbed overheads our when bsorbed overheads exeed atual overheads bsorbed overheads exeed budgeted overheads C tual overheads exeed absorbed overheads tual overheads exeed budgeted overheads The following information relates to questions 8.6 and 8. 7 ompany has the following atual and bud geted data for year 4. Prodution Variable prodution overhead per unit Fixed prodution overheads Sales udget 8,000 units $3 $360,000 6,000 units tual 9,000 units $3 $432,000 8,000 units Overheads are absorbed using a rate per unit, based on budgeted output and expenditure. 8.6 The fixed prodution overhead abso rbed during yea r 4 was: $384,000 $405,000 $432,000 $459, Fixed prodution overhead was: under absorbed by $27,000 under absorbed by $72,000 under absorbed by $75,000 over absorbed by $27, Wh ih of the following would be the most appropriate basis for apportioning mahinery insurane osts to ost entres within a fatory? The number of mahines in eah ost entre The floor area ou pied by the mahinery in eah ost entre The value of the mahinery in eah ost entre The operating hours of the mahinery in eah ost entre 8. 9 Fatory overheads an be absorbed by whih of the following methods? (i) (ii) (iii) (iv) iret labour hours Mahine hours s a perentage of prime ost $x per unit (i), (ii), (iii) and (iv) (i) and (ii) only (i), (ii) and (iii) only (ii), (iii) and (iv) only

3 QUESTIONS 8.10 The prodution overhead ontrol aount for R Limited at the end of the period looks like this. Stores ontrol Wages ontrol Expense reditors PROUCTION OVERHE CONTROL CCOUNT $ 22, , , ,200 Work in progress Profit and loss $ 404,800 8, ,200 Whih of the following statements are orret? (i) Indiret material issued from inventory was $22,800 (ii) Overhead absorbed during the period was $210,000 (iii) Overhead for the period was over absorbed by $8,400 (iv) Indiret wages osts inurred were $180,400 (i), (ii) and (iii) (i), (iii) and (iv) (i) and (iv) ll of them 8.11 Whih of the following is orret when onsidering the alloation, apportionment and reapportionment of overheads in an absorption osting situation? Only prodution related osts should be onsidered lloation is the situation where part of an overhead is assigned to a ost entre C Costs may on ly be reapportioned from prodution entres to servie entres ny overheads assigned to a single department should be ignored (2 marks} 8.12 ompany has over-absorbed fixed prodution overheads for the period by $6,000. The fixed prodution overhead absorption rate was $8 per unit and is based on the normal level of ativity of 5,000 units. tual prodution was 4,500 units. What was the atual fi xed prodution overheads inurred for the period? $30,000 $36,000 $40,000 $42, ompany manufaturers two produts, X and Y, in a fatory divided into two prodution ost entres, Primary and Finishing. The following budgeted data are available: Cost entre lloated and apportioned fixed overhead osts iret labour minutes per unit: - produt X - produt Y Primary $96, Finishing $82,500 udgeted prodution is 6,000 units of produt X and 7,500 units of produt Y. Fixed overhead osts are to be absorbed on a diret labour hour basis. What is the budgeted fi xed overhead ost per unit for produt Y? $11 $12 $14 $15 (2 marks}

4 8.14 ompany uses an overhead absorption rate of $3.50 per mahine our, based on 32,000 budgeted mahine hours for the period. uring the same period the atual total overhead expenditure amounted to $108,875 and 30,000 mahine hours were reorded on atual prodution. y how muh was the total overh ead under or over absorbed for the period? Under absorbed by $3,87 5 Under absorbed by $7,000 Over absorbed by $3,875 Over absorbed by $7, fatory onsists of two prodution ost entres (P and Q) and two servie ost entres (X and Y). The total alloated and apportioned overh d for eah is as follows: P a x v $95,000 $82,000 $46,000 $30,000 It has been estimated that eah servie ost e ntre does work for the other ost entres in the following proportions: p Q X y Perentage of servie ost entre X to Perentage of servie ost entre Y to fter the reapportionment of servie ost entre osts has been arried out using a method that fully reognises the reiproal servie arrangements In the fatory, what is the total overhead for prodution ost entre P? $122,400 $124,716 $126,000 $127, The following data is available for a paint department for the latest period. udgeted prodution overhead tual prodution overhead udgeted mahine hours tual mahine hours $150,000 $150,000 60,000 55,000 Whih of the following statements is orret? There was no under or over absorption of overhead Overhead was $13,636 over absorbed Overhead was $12,500 over absorbed Overhead was $12,500 under absorbed 8.17 tual overheads tual mahine hours udgeted overheads $496,980 16,566 $475,200 ased on the data above, and assuming that the budgeted overhead absorption rate was $32 per hour, the number of mahine hours (to the nearest hour) budgeted to be worked were I I hours. 14,850 15,531 16,566 33,132

QU ESTION 8.18 udgeted overheads udgeted mahine hours tual mahine hours tual overheads ased on the data above, the mahine hour absorption rate is (to the nearest $) $1 I per mahine hour.

In a period, atual mahine hours were 22,435, atual overheads were $496,500 and there was over absorption of $64,375.

5 QU ESTION 8.18 udgeted overheads udgeted mahine hours tual mahine hours tual overheads ased on the data above, the mahine hour absorption rate is (to the nearest $) $1 I per mahine hour. $690,480 15,344 14,128 $679, ompany absorbs overheads on mahine hours. In a period, atual mahine hours were 22,435, atual overheads were $496,500 and there was over absorption of $64,375. The budgeted overhead absorption rate was $ '-1,I per mahine hour (to the nearest$) ompany absorbs fixed prodution overheads in one of its departments on the basis of mahine hours. There were 100,000 budgeted mahine hours for the forthoming period. The fixed prodution overhead absorption rate was $2.50 per mahine hour. uring the period, the following atual results were reorded: Standard mahine hours 110,000 Fixed prodution overheads $300,000 Fixed prodution overhead was IL..,...JI absorbed by $ Ll J Over absorbed by $25,000 Under absorbed by $50,000 Over absorbed by $50,000 Under absorbed by $25,000 (Total = 40 marks)

D Accounting for management

D Accounting for management QU EST IONS ounting for management 17 mins 1.1 Whih of the following statements about qualities of good information is false? It should be relevant for its purposes It should be ommuniated to the right