Spectacular plc is a company that manufactures computer equipment. It has three production departments and a service department, and has produced the following budgeted cost of production for the year ended 31 March 2016:

£ £

Production cost Direct materials 240,000 Carriage inwards 10,000 Direct wages 200,000 450,000 Indirect wages Department P 8,000 Department Q 12,000 Department R 18,300 General service department 6,700 45,000 Other costs Consumable stores 32,000 Rent 21,000 Light and heat 14,000 Power 36,000 Depreciation (20% * cost) 80,000 Insurance: machinery 2,000 185,000 680,000 The following data relates to the physical and performance aspects of the company:
Department Area Cost of Stores Power Direct Direct- Machine m2 plant requisitions consumption labour labour hours £ kW hours cost P 15,000 140,000 180 80 100,000 50,000 70,000 Q 22,500 180,000 120 100 80,000 60,000 90,000 R 20,000 10,000 100 5 220,000 90,000 10,000 Service 12,500 70,000 – 15 – – –
The general service department is apportioned to the production departments on the basis of direct labour cost.

(a) Prepare an overhead analysis for the departments, showing clearly the basis of apportioning costs to departments.

(b) Prepare a computation of hourly cost rates (direct labour hours or machine hours)
of overhead absorption for each production department.

(c) Critically assess the two overhead absorption rates calculated in

(b) above.