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Allocation and Apportionment and Job and Batch Costing Worked Example Question 20

This document discusses allocation and apportionment of overheads and job and batch costing. It provides examples of calculating the value of issues to production and closing inventory. It also discusses apportioning budgeted overhead costs across production cost centers and a service cost center. Formulas are provided for calculating overhead absorption rates and a total selling price that includes direct costs, overhead, and markup. The document considers the implications of offering a 10% discount to a customer.

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Roshan Ramkhalawon
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192 views2 pages

Allocation and Apportionment and Job and Batch Costing Worked Example Question 20

This document discusses allocation and apportionment of overheads and job and batch costing. It provides examples of calculating the value of issues to production and closing inventory. It also discusses apportioning budgeted overhead costs across production cost centers and a service cost center. Formulas are provided for calculating overhead absorption rates and a total selling price that includes direct costs, overhead, and markup. The document considers the implications of offering a 10% discount to a customer.

Uploaded by

Roshan Ramkhalawon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Allocation and Apportionment of Overheads and Job and Batch Costing Solution

Question 20
(a)
(i) Value of issues to production on 5 March
Issued 3 000 kilos
1 500 @ 1.9 = 2 850
1 500 @ 1.92 = 2 880
Value of issues to production 5 730

(ii) Value of issues to production on 23 March


Issued 4 500 kilos
2 000 @ 1.92 = 3 840
2 000 @ 1.95 = 3 900
500 @ 2.00 = 1 000
Value of issues to production 8 740

(iii) Value of closing inventory at 31 March


Kilos
Opening inventory raw materials 1 500
Add purchases raw materials (3 500 + 2 000 + 1 500) 7 000
8 500
Less raw materials transferred to production (3 000 + 4 500) (7 500)
Closing inventory raw materials 1 000

Value of closing inventory = 1 000 @ 2 = $2 000

(b) Advantages of using FIFO


- Easy to calculate
- Inventory value is closer to current market value
- It is acceptable by IAS 2 for valuation of inventory for preparation of financial statements

(c) Apportionment of budgeted overhead costs


Total $ Production cost centres Service cost centre
Machining Assembly Stores
$ $ $
Depreciation 9760 6344 1952 1464
Heat and light 13850 8310 4155 1385
Machinery Maintenance 6500 5200 1300
Total overheads apportioned 30110 19854 7407 2849
Re-Apportionment of stores 2137 712 (2849)
Total overheads cost 30110 21991 8119 0

(d) Overhead absorption rate


OAR Machining = Budgeted overheads / Budgeted machine hours
= 21 991 / 13 400 = $1.64 per machine hour

OAR Assembly = Budgeted overheads / Budgeted labour hours


= 8 119 / 6 300 = $1.29 per labour hour
(e) Statement to show total selling price
Direct Labour (2.5 X 4) 10.00
Direct Materials (3 X 2) 6.00
Prime Cost 16.00
Add Overheads
- OAR Machining (1.64 X 1.5) 2.46
- OAR Assembly (1.29 X 2.0) 2.58 5.04
Cost per unit 21.04
X number of units 200
Total cost 4 208
Add mark-up (25 % X 4 208) 1 052
Selling price 5 260

(f) A discount of 10 % will result in a selling price of $4 734 [5 260 – (10 % X 5 260)] being charged. A profit
of $526 (4 734 – 4 208) will still be made. Total profit of the business will increase, and the factory will be
able to use the spare capacity available.
Accepting a lower price might cause other customers to be unhappy since they will be getting the goods at a
higher price. There is risk of losing customers. Other customers might also request discount. This will reduce
total profit of the business.
An additional profit of $526 is being made. It is advisable to accept the offer.

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