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Allocation and Apportionment and Job and Batch Costing Worked Example Question 10
Allocation and Apportionment and Job and Batch Costing Worked Example Question 10
Question 10
(a) Overhead Analysis Sheet
Overheads Basis Machining Assembly Maintenance Canteen
2120000 2120000 2120000 2120000
( 200 X70) ( 200 X104) ( 200 X16) ( 200 X10)
Indirect wages Number of employees 742000 1102400 169600 106000
410000 410000
(225000X202500) (225000X22500)
Repairs and maintenance of machinery Machine hours 369000 41000 - -
53000 53000 53000 53000
(20000X9000) (20000X8000) (20000X2000) (20000X1000)
Rent and Rates Floor area 23850 21200 5300 2650
24000 24000
(950000X617500) (950000X332500) - -
Machinery Insurance Machine Cost 15600 8400
28000 28000 28000 28000
(20000X9000) (20000X8000) (20000X2000) (20000X1000)
Premises Insurance Floor area 12600 11200 2800 1400
55 35 5 5
(100X48000) (100X48000) (100X48000) (100X48000)
Electricity – Power Power usage 26400 16800 2400 2400
14000 14000
( X617500) ( X332500)
950000 950000
Depreciation of machinery Machine cost 9100 4900 - -
Consumables Allocated 9550 9800 550 1250
Total allocated and apportioned 1208100 1215700 180650 113700
First reapportionment
35 60 5
(100X113700) (100X113700) (100X113700)
(d) The under absorption of $64500 in machining department occurred due to the following:
1. Overhead absorbed of $1 345 500 is less than actual overheads of $1 410 000.
2. Budgeted overheads of $1 396 963 is less than actual overheads of $1 410 000
3. Budgeted machine hours of 202500 is more than actual machine hours of 195 000. The machining
department has actually worked 7 500 less machine hours than planned.
The over absorption of $23 600 in assembly department occurred due to the following:
1. Overhead absorbed of $1 335 600 is more than actual overheads of $1 312 000.
2. Budgeted overheads of $1 321 187 is more than actual overheads of $1 312 000.
3. Budgeted labour hours of 314 500 is less than actual labour hours of 318 000. The assembly department
has actually worked 3 500 more labour hours than planned.
(e) The use of pre-determined OAR which is not accurate will result in an over or under absorption of
overheads.
When there is under absorption, the business has charged insufficient overheads when plan was made
resulting in the following:
• Overheads understated, understating cost.
• Selling price will be too low.
• The low selling price will not be sufficient to cover cost.
• Profit will fall.
When there is over absorption, the business has charged too much overheads when plan was made resulting
in the following:
• Overheads overstated, overstating cost
• Selling price will be too high, making the product uncompetitive.
• Demand will fall
• Revenue will fall
• Profit will fall.