A company makes a range of products with total budgeted manufacturing overheads of £973 560 incurred in three production departments (A, B and C) and one service department.
Department A has 10 direct employees, who each work 37 hours per week.
Department B has five machines, each of which is operated for 24 hours per week.
Department C is expected to produce 148 000 units of final product in the budget period.
The company will operate for 48 weeks in the budget period. Budgeted overheads incurred directly by each department are:
Production department A £261 745
Production department B £226 120
Production department C £93 890
Service department £53 305
The balance of budgeted overheads are apportioned to departments as follows:
Production department A 40%
Production department B 35%
Production department C 20%
Service department 5%
Service department overheads are apportioned equally to each production department. You are required to:
(a) Calculate an appropriate predetermined overhead absorption
rate in each production department. (9 marks)
(b) Calculate the manufacturing overhead cost per unit of finished product in a batch of 100 units which take 9 direct labor hours in department A and three machine hours in Department B to produce.