XYZ is a business with two production departments and one service department Tab
ID: 2612091 • Letter: X
Question
XYZ is a business with two production departments and one service department Table 1 sets out the indirect costs incurred by the business on behalf of all departments because there is insufficient information to permit allocation of costs as a whole. Table 2 sets out relevant information about each department which will be used in the process of determining an overhead cost rate Table1 Indirect costs incurred by the business Cost Item Total cost this month Indirect materials Indirect labour Rent Machine insurance Depreciation Total 36,000 40,000 1,000 1,600 2,000 80,600 Table 2 Information about each department Assembly|Finishing Maintenance Direct materials used for 400,000 500,000 Not applicable roduction Number of emplovees Floor area Value of machiner Number of direct labour hours 55.000 worked on production 25 300 sa ft 600 sg ft 300 sa ft 20,000 30,000 50,000 64,000 Not applicable The maintenance department provides service in proportion to the machinery used in each department.Explanation / Answer
Solution:-
Step 1:- Allocation of indirect costs to production and service department:-
Direct material used
(4:5:0)
Number of empoyees
(10:25:5)
Floor area
(3:6:3)
Value of machinery
(3:5:2)
Value of machinery
(3:5:2)
Step 2:- Allocation of service department cost to production department:-
Step 3:- Calculation of overhead recovery rate:-
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Cost item Total Basis Assembly Finishing Maintenance Indirect materials 36,000Direct material used
(4:5:0)
16,000 20,000 0 Indirect labor 40,000Number of empoyees
(10:25:5)
10,000 25,000 5,000 Rent 1,000Floor area
(3:6:3)
250 500 250 Machine insurance 1,600Value of machinery
(3:5:2)
480 800 320 Depreciation 2,000Value of machinery
(3:5:2)
600 1,000 400 Total indirect cost 80,600 27,330 47,300 5,970Related Questions
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