Prepare an overhead analysis statement to allocate and apportion overheads to the cost centres

1. Cameron’s plc manufactures high quality sofas and chairs for the interior designmarket. The business has 3 production departments (A, B and C) and 2 servicedepartments (D and E). The following data has been provided:Indirect Wages Dept A £60,000£144,350Dept B £27,400Dept C £21,250Dept D £26,000Dept E £9,700Insurance of Property £23,000Supervisor’s salary £30,000Rent and rates £166,750Power £34,600Depreciation of Plant and Machinery £56,000Total £454,700Additional Information:Dept A Dept B Dept C Dept D Dept EArea (sq m) 4,000 2,000 1,000 1,500 3,000No of employees 30 24 20 10 16Metered power (kw hrs) 1,620 240 200 600 800Plant and Machinery at cost £150,000 £40,000 £10,000 £20,000 £60,000Direct machine hours 22,000 12,000 2,875 3,000 1,000Direct labour(at £12 per hour) £162,000 £360,000 £252,000 – –(a) Prepare an overhead analysis statement to allocate and apportion overheads tothe cost centres.(b) Re-apportion the costs of service department E to the other departments on thebasis of number of employees.(c) Re-apportion the costs of service department D to the other departments on thebasis of machine hours.(d) Calculate the overhead absorption rate for each of the production departmentsas follows:Dept A – direct machine hoursDept B – percentage of direct labour costDept C – direct labour hours.
Actual production department data for the period is as follows:Dept A Dept B Dept CDirect machine hours 20,500 25,000 23,250Direct labour cost £180,000 £370,000 £275,000Direct labour hours 21,300 20,000 19,750Overheads £242,000 £122,400 £75,000(e) Calculate the amount of overhead over/under absorbed in each department.Your answer must clearly state whether the amount is over or under absorbed.Cameron’s plc is in the process of putting together a quote for a client, who hasrequested information as to the cost of producing 20 luxury sofas for their hotel. Thefollowing data has been made available for Job CC006.Direct Material:Material X – 10 metres per sofa @ £20 per metreMaterial Y – £10 per metre — used at a rate of 1 metre for every 10 of Material XStuffing material – 4 kg per sofa. Stuffing material is provided in large rolls of 200 kg,each of which costs £500.Direct Labour:Dept A – 40 labour hoursDept B – 20 labour hoursDept C – 6 labour hoursMachine Hours:Dept A – 40 hoursDept B – 30 hoursDept C – 20 hoursDirect expenses are expected to total £239.Profit margin is set at 25%.(f) Prepare a job cost statement to calculate the selling price of Job CC006.For the year ahead, the Finance Director is considering using a factory wide overheadabsorption rate, based on units produced. Current estimates show that fixed costsare likely to be £420,000 and that production is expected to be 10,000 units.(g) (i) Calculate the estimated overhead absorption rate for the coming year.(ii) Calculate the change in the total cost of Job CC006, if the factory wideoverhead absorption rate had been applied.

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