(a) Why is it necessary to apportion overheads to departments? How is this done in practice? (9 marks)

(b) A firm has three production departments and two service departments. Details of their costs for a month are shown below:

It has been agreed to charge Department H’s costs as follows: 45% to A;
35% to B; 15% to C; 5% to G. Department G’s costs are to be charged:
55% to A; 25% to B; 20% to C. A and C recover overheads on the basis of direct labour hours, which are 885 for A and 537 for C; B recovers overheads on the basis of machine hours, which are 613.
Calculate the overhead recovery rate for the production department. (10 marks)

(c) Use your answer to explain how overheads are absorbed by production.

Transcribed Image Text:

Production Departments Service Departments A B C G H Indirect labour 10 000 8 000 4.000 3.000 2.000 Other overheads 6 000 5 000 3.000 1 500 1 000