U Win Bo Myint Cost and Management CPA

Overhead Homework
Question – 1
Camping Adventures Limited produces tents to customer order and has been in operation for ten years. Since its
inception the company has seen its revenues grow significantly, particularly in the recessionary economic climate
of the last four years as consumers search for cheaper holiday alternatives.
Customer orders are priced by adding 25% onto the total product cost of the required tent. The direct materials
and direct labour costs of each tent ordered are simple to compute but the overhead is more difficult to calculate
and to facilitate the process the company has adopted a traditional approach to the allocation of overheads. The
company has three production departments, Cutting, Stitching and Finishing, and two support departments,
Stores and Machine Maintenance. The following cost information for July 2013 is available:
Total Cutting Stitching Finishing Stores Machine
Maintenance
$ $ $ $ $ $
Direct wages 233,000 65,000 45,000 88,000 20,000 15,000
Indirect wages 85,000 31,000 23,000 18,000 7,500 5,500
Light & heat 75,000
Factory insurance 25,000
Factory rent 49,000
Machine depreciation 62,500
Advertising 15,000
Power 96,000

The company has also supplied details of its activity for the month of July 2013 as follows:
Total Cutting Stitching Finishing Stores Machine
Maintenance
Machine hours 36,000 15,000 20,000 1,000
Direct labour hours 20,000 5,000 4,000 11,000
Value of stores issues ($) 196,000 127,400 54,880 13,720
Floor area (square metres) 500 150 125 120 90 15
Value of machinery ($) 500,000 180,000 200,000 60,000 40,000 20,000
Kilowatt hours (% usage) 100 30 45 10 5 10

REQUIREMENT:
(a) On the basis of the information provided above, prepare a schedule which presents figures for total
budgeted overheads for each of the five departments. The bases of apportionment adopted should be
clearly shown. (12 marks)
(b) Calculate the total budgeted overheads for each of the three production departments after the service
departments have been re-apportioned to them. (3 marks)
(c) Calculate pre-determined overhead absorption rates for each of the production departments. (3 marks)
(d) For customer order B519 shown below, calculate the total price that would be quoted by Camping
Adventures Limited for the required tent:

Direct materials $105.50

Direct labour hours:
Cutting 0.5 hour
Stitching 1 hour
Finishing 0.75 hour
Machine hours
Cutting 0.25 hour
Stitching 0.50 hour
Finishing 0.25 hour

1
U Win Bo Myint Cost and Management CPA

Question – 2

C Ltd is a manufacturing company. In one of the production departments in its main factory a machine hour rate
is used for absorbing production overhead. This is established as a predetermined rate, based on normal activity.
The rate that will be used for the period which is just commencing is $15.00 per machine hour. Overhead
expenditure anticipated, at a range of activity levels, is as follows:
Activity level ($)
(machine hours)
1500 25 650
1650 26 325
2000 27 900
Required:
Calculate:
(i) the variable overhead rate per machine hour;
(ii) the total budgeted fixed overhead;
(iii) the normal activity level of the department; and
(iv) the extent of over-/under-absorption if actual machine hours are 1700 and expenditure is as budgeted.
(10 marks)