12.3 WGB produces two types of metal shelving in their factory – one for domestic use, and one, which is produced to a higher quality standard, for commercial use (in factories and hotel kitchens, for example).

Each shelf unit passes through two processes – first, metal machining and second, painting and finishing (P&F). Commercial shelving is made of stronger material, has extra bracing bars and is given an additional coat of paint in the painting shop.

Cost structures for the two products are as follows:
Domestic shelves Commercial shelves Dept £ Dept £
Materials Machining 18.00 Materials Machining 27.00 P&F 3.30 P&F 4.60 21.30 31.60 Direct labour Machining Direct labour Machining 0.75 hours  £6 4.50 1 hour @ £6 6.00 P&F 1 hour @ £6 P&F 1.5 hours @ £6 6.00 9.00 10.50 15.00 Prime cost 31.80 46.60 Production overheads are estimated at the following apportioned amounts for next year:
Machining £172 490 Painting and finishing £116 270 The company plans to produce 6 000 units of each product next year.
Required: calculate overhead absorption rates based upon:
i) percentage of direct materials cost ii) percentage of direct labour cost.
Discuss which basis of overhead absorption might be preferable for each cost centre.