QUESTION 1: (40 MARKS)

Woventex Ltd operates a factory which consists of two production cost centres namely
Machining and Finishing. Within the factory is located two service cost centres, namely
Stores which is responsible for material procurement and maintenance which provide
machine maintenance facilities to the production cost centre.

Shown below are next year’s budgeted overhead costs for the company:
Production Total Machining Finishing Stores Maintenance
overheads Rs Rs Rs Rs Rs
Indirect wages 100,000 45,000 35,000 15,000 5,000
Indirect materials 30,000 10,000 8,000 7,000 5,000

Lighting & Heating 15,000

Works management 3,000
Insurance of building 20,000
Insurance of plant 12,000
Depreciation of plant 10,000
Pension costs 6,000
Property taxes 9,000

Other Information Total Machining Finishing Stores Maintenance

Floor area (sq. Ft) 5000 2,500 1,500 500 500

Value of Plant (Rs 200 120 50 10 20
000)
No. of employees 75 40 20 10 5
No. of requisitions 700 300 250 - 150
Maintenance hours 1,000 700 300 - -
Labour hours 60,000 25,000 35,000 - -
Machine hours 70,000 45,000 25,000 - -

Overhead Analysis 1 of 13
 REQUIRED:
(a)
a) ) Prepare an overhead analysis sheet showing the allocation and apportionment of
overheads to each production cost centre clearly showing the bases of
apportionment used. (10 marks)

(ii) Calculate an appropriate overhead absorption rate for both Machining and
Finishing cost centre, explaining the relevance of the basis used. (4 marks)

(iii) Calculate the budgeted manufacturing cost of a product if it uses 3 kgs of

material which cost Rs 3/kg, 2 labour hours at Rs4/hour and if 3 machine hours
and 2 labour hours is required for processing one unit of a product. (4 marks)

(iv) On the assumption that actual activity during a particular period was:
Machining 50,000 machine hours
Finishing 30,000 labour hours

For the same period, actual overheads incurred by each cost centre was:
Machining Rs135,000
Finishing Rs75,000

CALCULATE:
(b) (i) Overheads absorbed by Machining and Finishing cost centres. (3 marks)

(ii) Any Over/(under) absorbed overheads by each cost centre. (3 marks)

(iii) Why a portion of overhead is charged to the costing of a

production? (3 marks)

(iv) How over/(under) overhead absorption arises? (3 marks)

(c) What is Activity Based Costing and how it differs from Traditional
product costing methods? (6 marks)

(d) List the main differences between Financial Accounting and Cost and
Management Accounting. (4 marks)

Overhead Analysis 2 of 13
 QUESTION 2: (30 MARKS)

PART A: (26 MARKS)

CMT Ltd operates a factory which consists of two production departments, namely
Machining and Assembly. Within the factory is located two service departments, namely
Stores and Machine maintenance which provide support facilities to the production
departments.
Shown below are next year’s budgeted overhead costs for the company:
Allocated Total Machining Assembly Stores Maintenance
overheads
Ind. Wages 120,000 45,000 40,000 15,000 20,000
Ind. materials 30,000 15,000 10,000 3,000 2,000

Common costs:
Electricity 9,000
Supervision 3,000
Insurance of building 15,750
Insurance of plant 11,000
Depreciation of plant 5,500
National Pension Scheme 4,200
Building security 5,625
Other information:
Total Machining Assembly Stores Maintenance
Floor area (sq. Ft) 4,500 2,000 1,500 450 550
Plant Value (Rs’000) 220 100 80 15 25
No of employees 200 50 130 10 10
No. of requisitions 2,500 1,500 700 - 300
Maintenance hours 1,500 900 600 - -
Labour hours 8,000 2,000 6,000 - -
Machine hours 10,000 7,500 2,500 - -

Overhead Analysis 3 of 13
REQUIRED:
(a) Prepare a statement to show the total overheads for each production department
showing the basis of apportionment selected. (11 marks)
(b) Calculate an appropriate overhead absorption rate for Machining and Assembly
department, explaining the relevance of the basis used. (3 marks)
(c) Calculate the budgeted manufacturing overhead cost per unit of product A if it uses
4kgs of material at Rs5/kg, 3 labour hours at Rs2/hour and the estimated cost of
product A if 2 machine hours and 1.5 labour hours is required for processing.
(3 marks)
(d) The Machining department was in operation for 2,500 hours and the no. of direct
labour hours worked by the Assembly department was 1,200. For the same period,
overheads incurred were as follows:
Machining Rs 35,000 Assembly Rs20,000

CALCULATE:
(i) Overheads absorbed by Machining and Assembly departments
respectively. (3 marks)
(ii) Over/under absorbed overheads for each department. (6 marks)

Overhead Analysis 4 of 13
QUESTION 3: (40 MARKS)

Phoebe Ltd, a furniture-making business manufactures quality furniture to customers`

orders. It has three production departments and two service departments. Budgeted
overhead costs for the coming year are as follows:
Total (Rs)

Rent and rates 12,800

Machine insurance 6,000
Telephone charges 3,200
Depreciation 18,000
Production supervisor`s salaries 24,000
Heating and lighting 6,400
70,400

The three production departments – A, B and C, and the two service departments – X
and Y, are housed in the new premises, the details of which, together with other statistics
and information, are given below:
Departments
A B C X Y

Floor area occupied (sq.metres) 3,000 1,800 600 600 400

Machine values (Rs 000) 24 10 8 4 2
Direct labour hours budgeted 3,200 1,800 1,000 nil nil
Allocated overheads:
Specific to each department (Rs 000) 2.8 1.7 1.2 0.8 0.6
Service department X`s costs apportioned 50% 25% 25% nil nil
Service department Y`s costs apportioned 20% 30% 50% nil nil

REQUIRED:
(a) Prepare a statement showing the overhead cost budgeted for each department,
showing the basis of apportionment used. Also calculate suitable overhead
absorption rates. (20 marks)

Overhead Analysis 5 of 13
(b) Two pieces of furniture are to be manufactured for customers. Direct costs are as
follows:
Job 123 Job 124

Direct material Rs 154 Rs 108

Direct labour Rs 76 (20 hours Dept A) Rs 60.80 (16 hours Dept A)
Rs 42 (12 hours Dept B) Rs 35.00 (10 hours Dept B)
Rs 34 (10 hours Dept C) Rs 47.60 (14 hours Dept C)

Calculate the total cost and selling price for Job 124, using a margin of 20%
(6 marks)
(c) Assume that the actual fixed overhead cost of the Department A totals Rs 30,000
and that the actual labour hours were 3,700.
Calculate any over-/under absorption for Department A. Explain briefly the
possible causes for your answer. (6 marks)

(d) Activity-Based Costing (ABC) is a costing model that identifies activities in an

organization and assigns the cost of each activity resource to all products and
services according to the actual consumption by each
Explain why ABC might lead to a more accurate assessment of management
performance than traditional absorption costing (8 marks)

Overhead Analysis 6 of 13
QUESTION 4: (40 MARKS)

PART A: (30 MARKS)

Sam Limited has three production departments, Forming, Machining and Assembly,
and two service departments, Maintenance and General. During the past years, the
following departmental overhead absorption rates have been in use:
Overheads are absorbed on the basis of direct labour hours for the forming and
assembly departments, and on machine hours for the machining department.

The budgeted overhead costs are as follows:

Rs. Rs
Rent and Rates 16,000
Power 15,000
Repairs and maintenance
Forming 1,600
Machining 3,600
Assembly 600
Maintenance 400
General 200 6,400
Departmental expense
Forming 3,000
Machining 4,600
Assembly 2,200
Maintenance 1,800
General 3,000 14,600
Depreciation
Plant 10,000
Fixtures 15,750

Insurance-Plant 4,000
81,750

Overhead Analysis 7 of 13
 Other data is available as follows:
Forming Machining Assembly Maintenance General Total
Floor Area (sq
Ft) 2,000 4,000 3,000 500 500 10,000
Plant Value 25,000 60,000 7,500 7,500 - 100,000
Fixtures and
fittings 1,000 500 2,000 1,000 500 5,000
Power 40 90 15 5 - 150
Budgeted
direct labour
hours - -
10,000 18,000 20,000 48,000
Budgeted
machine - -
hours 5,000 25,000 2,000 32,000
Actual direct
labour hours 10,500 20,000 19,500 50,000
Actual
machine
hours 6,000 23,000 1,800 30,800

Service department costs are apportioned as follows:

Maintenance General
% %
Forming 30 20
Machining 50 60
Assembly 20 20

Actual overheads incurred were the same as budgeted.

REQUIRED:

(a) Prepare an overhead distribution summary. (16 marks)

(b) Calculate the overhead absorption rates for the three

production departments. (3 marks)

(c) Calculate the overhead absorbed for the three production

departments. (3 marks)
(d) Calculate the amount of over/under absorption of
overheads the three production departments. (3 marks)

(e) Explain why over/under absorption of overhead arise. (5 marks)

Overhead Analysis 8 of 13
 QUESTION 3: (30 MARKS)
QUESTION: 5
PART A
Dunstan Ltd manufactures tents and sleeping bags in three separate production
departments. The principal manufacturing processes consist of cutting material in the
pattern cutting room and sewing the material in either the tent or the sleeping bag
departments. For the year to 31st July cost centre expenses and other relevant
information are budgeted as follows:

Total (£) Cutting Tents Sleeping Raw Canteen Maintenance

room (£) bags material (£) (£)
(£) (£) stores
COST AND MANAGEMENT ACCOUNTING- ACCF1104 (£)

Indirect wages 147200 6400 19500 20100 41200 15000 45000

Consumable 54600 5300 4100 2300 18700 24200
materials
Plant 84200 31200 17500 24600 2500 3400 5000
Depreciation
Power 31700
Heat and light 13800
Rent and rates 14400
Building 13500
insurance
Floor area (sq 30000 8000 10000 7000 1500 2500 1000
ft)
Estimated 100 17 38 32 3 8 2
power usage
(%)
Direct labour 112000 7000 48000 57000
(hours)
Machine usage 87000 2000 40000 45000
(hours)
Value of raw 100 62.5 12.5 12.5 12.5
materials
issued (%)

Required:
Calculate the overhead absorption rates for each machine hour and each direct
labour hour for the three production units. You should use bases of apportionment
and absorption which you consider most appropriate, and the bases used should be
clearly indicated in your statement. (15 marks)
Overhead Analysis 9 of 13
QUESTION 6: (40 MARKS)
Water-mount Ltd is a textile company which operates two production cost centres
Assembly and finishing and two service cost centres namely maintenance and
canteen. Budgeted data is provided below:

Production centres Service centres Total

Assembly Finishing Maintenance Canteen
Rs Rs Rs Rs Rs
Indirect labour 450,000 310,000 62,500 27,500 850,000
Rent and rates 320,000
Power 210,000
Supervision 155,000
Consumables 5,000
Depreciation -plant 120,000

The following information is also given:

Production centres Service centres Total
Assembly Finishing Maintenance Canteen
No. of employees 40 30 20 90
Horsepower(KWH) 4,000 3,000 600 400 8,000
Floor area 12,000 16,000 1,500 500 30,000
Plant (book value) 300,000 150,000 50,000 500,000
Machine hours 60,000 30,000
Labour hours 20,000 50,000
Consumables(Rs) 3,000 1,200 600 200 5,000

Further information:
The maintenance service centre provides 3,000 hours to the Assembly Department
and 5,000 hours to Finishing Department.

Required:

(a) Prepare an overhead analysis sheet showing the allocation and

apportionment of overhead to the four cost centres and apportion the service
cost centres’ overheads to the two production cost centres, clearly indicating
the basis of apportionment. (16 marks)
(b) Calculate the overhead absorption rates for the assembly and finishing
departments. (4 marks)

Overhead Analysis 10 of 13
(c) Suppose that the company used 65,000 machine hours incurring Rs850,000
of overheads in the Assembly department and consumed 43,000 labour
hours in the Finishing department incurring Rs720,000 of overheads.

Calculate the extent of any over/under overheads absorbed in both the

Assembly and Finishing department. (4 marks)

(d) A special order known as job number 21BX will incur the
following costs:

Direct materials Rs3,600

Direct labour Rs1,800

It will also consume the following:

Machine hours Labour hours

Assembly department 14 4
Finishing department 3 12

The company charges a mark-up of 25% on full production cost

Provide a quote for Job 21BX (6 marks)

(e) Briefly explain two differences between Absorption costing and Activity based
costing. (4 marks)

(f) Discuss the difficulties that businesses may face in implementing ABC.
(6 marks)

Overhead Analysis 11 of 13
QUESTION 7: (40 MARKS)
PART A: (30 MARKS)
Steel manufacturer’s Ltd operates a factory which consists of three production departments, namely
Machining, Finishing and Assembly. Within the factory is located two service departments, namely
Stores and Machine maintenance which provide support facilities to the production departments.

Shown below are next year’s budgeted overhead costs for the company:

Allocated overheads Total Machining Finishing Assembly Stores Maintenance

Rs Rs Rs Rs Rs Rs

Ind.Wages 62,570 23,260 20,670 11,870 4,100 2,670

Ind.Materials 22,600 6,300 9,100 3,700 1,400 2,100
Power 3,600
Light & heat 3,000
Rent & rates 7,000
Insurance of plant 4,000
Depreciation of plant 22,000
Pension costs 2,800
Canteen costs 1,200

Other Information Total Machining Finishing Assembly Stores Maintenance

Floor area (sq. Ft) 25,000 5,000 6,000 8,000 2,000 4,000
Value of Plant (Rs 000) 150 60 45 15 6 24
Horse power 100 50 30 15 - 5
No. of employees 100 40 30 15 10 5
No. of requisitions 17,500 6,000 9,000 2,000 - 500
Maintenance hours 1,200 500 400 300 -
Labour hours 55,000 20,000 10,000 25,000 -
Machine hours 85,000 40,000 45,000 - -

Overhead Analysis 12 of 13
Required:
(a) Prepare an overhead analysis sheet showing the allocation and apportionment of overhead
to the five cost centres and apportion the service cost centres’ overheads to the three
production cost centres, clearly indicating the basis of apportionment. You should rewrite
the format of the table in your answer booklet. (17 marks)

(b) Calculate suitable overhead absorption rates for Machining, Finishing and Assembly
department, explaining the relevance of the basis used. (3 marks)

(c) Calculate the overhead to be absorbed by product PK, with cost sheets showing the
following times spent in different production departments:

Machining 6 machine hours

Finishing 2 machine hours

Assembly 5 Direct labour hours (3 marks)

(d) Calculate the full production cost of product PK if costs incurred were as following: Direct
material Rs15 and Direct labour Rs10. (2 marks)

(e) The Machining department was in operation for 7,000 hours and the number of direct labour
hours worked by the Finishing and Assembly departments were 3,000 and 5,000 hours
respectively. For the same period, overheads incurred were as follows: Machining
Rs95,000, Finishing Rs30,000 and Assembly Rs50,000.

Calculate the extent of any over/(under) overheads absorbed by the production cost centres.
(3 marks)

(f) Explain the accounting treatment of any over/(under) overheads. (2 marks)

PART B: (10 MARKS)

(a) Explain briefly two differences between financial and cost/management accounting
(4 marks)

(b) Briefly explain why ABC costing is preferred to traditional absorption costing in
assessing management performance (6 marks)

Overhead Analysis 13 of 13