Overhead cost issues. [From CIMA Management Accounting Pillar Managerial Level 1

Question

Overhead cost issues. [From CIMA Management Accounting Pillar Managerial Level 1 Paper, November 2006] X Ltd has two production departments, Assembly and Finishing, and two service departments, Stores and Maintenance. Store provides the following service to the production departments: 60% to Assembly and 40% to Finishing. Maintenance provides the following service to the production and service departments: 40% to Assembly, 4% to Assembly, 45% to Finishing an 15% to Stores. The budgeted information for the year is as follows: At the end of the year after apportioning the service department overheads, the total fixed production overheads debited to the Assembly department's fixed production overhead control account were 180000. the actual output achieved was 120000 units. Required 1 Calculate the under/over absorption of fixed production overheads for the Assembly department.

Explanation / Answer

Fixed Overhead allocation table Maintanence Stores Assembly Finishing Total Fixed Overhead 40000 50000 100000 150000 Maintainence will be divided among other three in 15:40:45 ratio or 3:8:9 6000 16000 18000 40000 Total 0 56000 116000 168000 340000 Now Stores will be divided among two production department in 6:4 ratio 33600 22400 56000 Total 149600 190400 Budgeted Fixed Overhead to Assembly Dept 149600 No. of Units 100000 Fixed Overhead Absorption Rate 1.496 Now this is applied to actual units produced Absorbed Overhead=120000*1.496 179520 Actual Overhead 180000 Underapplied 480

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