Past exam questions

Allocation, Apportionment, Absorption costing & Overhead absorption rates

Question 1: WRAPWELL LTD

Wrapwell Ltd has the following departments involved in the first stage of production:
• Plastics Moulding
• Plastics Extrusion
• Maintenance
The budgeted fixed overheads relating to the departments for Quarter 1, 20XX are:
$£ £
$
Insurance of machinery 22,400
Rent and rates
Indirect labour costs: 60,800
Plastics Moulding 90,500
Plastics Extrusion 78,300
Maintenance 22,800
Total 191,600
Total fixed overheads 274,800

The following information is also available.

Department NBV fixed assets Square metres Number of

£$000 occupied employees
Plastics Moulding 720 1,100 14
Plastics Extrusion 360 800 12
Maintenance 120 100 4
Total 1,200 2,000 30

Fixed overheads are allocated or apportioned to the departments on the most appropriate basis. The total
maintenance overheads are then reapportioned to the two production departments. 70% of the Maintenance
department’s time is spent maintaining equipment in the Plastics Moulding department.

Task 1
Use the following table to allocate or apportion the fixed overheads between the production departments, using
the most appropriate basis.
 Fixed Basis of Total cost Plastics Plastics Maintenance
Overhead allocation or Moulding Extrusion
apportionment $ $ £ $
£ £ $ £
Insurance of
machinery 22,400

Rent and rates

60,800

Indirect labour
costs 191,600

Maintenance

274,800

ADDITIONAL DATA
The Plastics Moulding department recovers its fixed overheads on the basis of the budgeted machine
hours. The Plastics Extrusion department, however, recovers its fixed overheads on the basis of the
budgeted direct labour hours.
The following information relates to these two departments for October 20XX.

Plastics Moulding Plastics Extrusion

department department

Budgeted fixed overhead absorption

rate $£60 / $£25 /
hour hour
Actual machine hours worked 850

Actual direct labour hours worked 1,520

Actual fixed overheads $£55,000 $£36,000

Task 2
a) Calculate the fixed overhead absorbed during October in:
i. The Plastics Moulding department
ii. The Plastics Extrusion department
 b) Calculate the over or under absorption of fixed overheads during October, stating clearly whether
overheads have been over or under absorbed, for:
i. The Plastics Moulding department
ii. The Plastics Extrusion department

MARKING SCHEME
Question 2: BRECKVILLE DAIRIES LTD

Breckville Dairies Ltd has the following departments involved in one of the stages of production:
• Materials Mixing
• Product Packing
• Maintenance

The budgeted fixed overheads relating to the departments for the next are:
$ $£
£
Insurance of machinery 33,600
Rent and rates Indirect 91,200
labour costs:
Materials Mixing 35,750
Product Packing 87,450
Maintenance 12,250
Total 135,450
Total fixed overheads 260,250

The following information is also available.

Net book value of

Square metres Number of
Department fixed assets
occupied employees
$£000
Materials mixing 360 550 7
Product packing 180 400 24
Maintenance 60 50 3
Total 600 1,000 34
Fixed overheads are allocated or apportioned to the departments on the most appropriate basis. The total
maintenance overheads are then reapportioned to the two production departments. 60% of the Maintenance
department’s time is spent maintaining equipment in the Materials mixing department.

Task 1
Use the following table to allocate or apportion the fixed overheads between the production departments, using
the most appropriate basis.

Fixed overhead Basis of allocation Total cost Materials Product Maintenance

or apportionment Mixing Packing
$ $£ $£ $£
£
Insurance of
machinery 33,600

Rent and rates

91,200

Indirect labour
costs 135,450

Maintenance

260,250

ADDITIONAL DATA
The Materials Mixing department is highly automated and operates with expensive machinery. The Product
Packing department, on the other hand, is highly labour intensive.
The following budgeted information relates to next quarter:

Materials Mixing Product Packing

Number of machine hours 3,940 2,840

Number of labour hours 3,200 10,920

 Task 2
Using your calculations in Task 1 and the information above, calculate the budgeted fixed overhead
absorption rates (recovery rates) for the next quarter using the most appropriate bases of absorption for:
a) The Materials Mixing department
b) The Product Packing department
Note: You should round your answers to whole pounds.

MARKING SCHEME

Question 3: CASTON FINE FOODS LTD

The budgeted overheads relating to the company’s five centers for Quarter 1 of the next financial year are:
$£ $£
Depreciation of machinery 1,200,400
Rent and rates 600,800
Light and heat 200,000
Power (for Ingredient Mixing and Containerisation) 500,000
Indirect labour costs:
Ingredients mixing 501,644
Containerisation 316,896
Packing and despatch 558,460
Maintenance 75,800
Stores 141,000
Total indirect labour cost 1,593,800
The following information is also available:

Department NBV of Square metres Number of Number of

machinery occupied machine hours direct labour
($£000) hours

Ingredients Mixing
5,200 1,800 3,000 -

Containerization 3,900 1,500 2,000 -

Packing & Dispatch 2,600 1,800 - 5,000

Maintenance 650 300 - -

Stores 650 600 - -

Total 13,000 6,000 5,000 5,000

Overheads are allocated or apportioned on the most appropriate basis. The service cost centres’ total
overheads are then reapportioned to the three production departments using the direct method:
 60% of the Maintenance department’s time is spent maintaining machinery in the Ingredients
Mixing cost centre and the remainder in the Containerisation cost centre.
 The Stores department makes 40% of its issues to the Ingredients Mixing cost centre, 40% to the
Containerisation cost centre and the rest to the Packing and Despatch cost centre.
There is no reciprocal servicing between the two service cost centres.

Task 1

Basis of Ingredients Packing

Department allocation or Mixing Containerisation and Maintenance Stores Total
apportionment Despatch
$ $£ $ $ $£ £$
£ £ £
Depreciation
of machinery

Rent and rates

Light and heat

Power

Indirect labour

Totals

Re-apportion
Maintenance
Re-apportion
Stores
Total
production
cost centres

Task 2
Ingredients Mixing and Containerisation recover their overheads on a machine hour basis, and Packing and
Despatch on a direct labour hour basis.
Using the Data and your calculation from Task 1, calculate the overhead absorption rates for each of the
three production cost centres.
MARKING SCHEME
Question 4: Delcom Ltd

Delcom has the following four production departments:

• Machining 1
• Machining 2
• Assembly
• Packaging

The budgeted fixed overheads relating to the four production departments for Quarter 3 2010 are:
£$ £$
Depreciation 80,000
Rent and rates 120,000
Indirect labour costs:
Machining 1 40,500
Machining 2 18,300
Assembly 12,400
Packaging 26,700
Total 97,900
Direct assembly costs 15,600
Total fixed overheads 313,500

Fixed overheads are allocated or apportioned to the production departments on the most appropriate basis.

The following information is also available:

Net Book value of

Square metres Number of
Department fixed assets
occupied employees
($£000)
Machining 1 1280 625 8

Machining 2 320 250 4

Assembly 960 500 3

Packaging 640 1125 7

Total 3200 2500 22

Task 1

Basis of
Fixed
allocation or Total Cost Machining 1 Machining 2 Assembly Packaging
overhead
apportionment
($£) ($£) ($£) ($£) (£$)

Depreciation 80,000

Rent and rates 120,000

Indirect labour
costs 97,000

Direct
assembly costs 15,600

Totals 313,500

ADDITIONAL INFORMATION
You have consulted the manager of a separate division, who tells you that this division is highly automated, and
operates with expensive machinery which is run wherever possible on a 24 hour a day, 7 days a week basis.

The following information relates to this division for July 20XX.

Total department overheads $£400,000

Total budgeted direct labour hours $£3,000

Total budgeted machine hours $£10,000
Total actual direct labour hours $£2,500
Total actual machine hours $£9,000

Task 2
Calculate the budgeted fixed overhead absorption rate for the division for July 20XX, using the most
appropriate basis of absorption.

MARKING SCHEME