Scribd
Upload
88 views2 pages

Accounting For Overhead

This document discusses various procedures for accounting for overhead costs. It addresses: (1) distinguishing between direct and indirect expenses; (2) determining production overhead absorption rates; (3) allocating and apportioning overhead costs to different cost centers; and (4) reapportioning service center costs using percentages. It then provides an example involving two production cost centers and two service cost centers. Finally, it asks questions about selecting appropriate absorption rates based on budgets, journal entries, and calculating under or over absorption of overhead costs.

Uploaded by

Trya Salsabilla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
88 views2 pages

Accounting For Overhead

This document discusses various procedures for accounting for overhead costs. It addresses: (1) distinguishing between direct and indirect expenses; (2) determining production overhead absorption rates; (3) allocating and apportioning overhead costs to different cost centers; and (4) reapportioning service center costs using percentages. It then provides an example involving two production cost centers and two service cost centers. Finally, it asks questions about selecting appropriate absorption rates based on budgets, journal entries, and calculating under or over absorption of overhead costs.

Uploaded by

Trya Salsabilla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

ACCOUNTING FOR OVERHEAD

Accounting for overheads


(i) Explain the different treatment of direct and indirect expenses.[K]
(ii) Describe the procedures involved in determining production overhead absorption rates.[K]

(iii) Allocate and apportion production overheads to cost centres using an appropriate basis.
[S]

(iv) Reapportion service cost centre costs to production cost centres (including using the
reciprocal method where service cost centres work for each other).[S]
A factory consists of two production cost centres (P and Q) and two service cost
centres (X and Y). The total allocated and apportioned overhead for each is as
follows:
 
P Q X Y
$95,000 $82,000 $46,000 $30,000
 
It has been estimated that each service cost centre does work for other cost centres
in the following proportions:
 
P Q X Y
Percentage of service cost centre X to 50 50 - -
Percentage of service cost centre Y to 30 60 10 -
 
The reapportionment of service cost centre costs to other cost centres fully reflects
the above proportions.
After the reapportionment of service cost centre costs has been carried out,
what is the total overhead for production cost centre P?
$128,500
$124,500
$126,100
$127,000

(v) Select, apply and discuss appropriate bases for absorption rates.[S]
Budgeted information relating to two departments in a company for the next period is as follows.

Individual direct labour employees within each department earn differing rates of pay, according to their skills,
grade and experience.
7a.2 What is the most appropriate production overhead absorption rate for department 1?
 40% of direct material cost
 200% of direct labour cost
 $10 per direct labour hour
 $0.60 per machine hour (2 marks)
7a.3 What is the most appropriate production overhead absorption rate for department 2?
 50% of direct material cost
 18% of direct labour cost
 $0.72 per direct labour hour
 $60 per machine hour

(vi) Prepare journal and ledger entries for manufacturing overheads incurred and absorbed.
[S]
(vii) Calculate and explain the under and over absorption of overheads

A company uses an overhead absorption rate (OAR) of $3.50 per machine hour,
based on 32,000 budgeted machine hours for the period.  During the same period,
the actual total overhead expenditure amounted to $108,875 and 30,000 machine
hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
Under-absorbed by $3,875
Over-absorbed by $7,000
Under-absorbed by $7,000
Over-absorbed by $3,875

You might also like