16.10 Outlane Limited’s overhead budget for a certain period is as follows:

Previously, the company has absorbed overhead on the basis of 100 per cent of the direct labour cost. It has now decided to change to a separate machine-hour rate for each department.
The company has been involved in two main contracts during the period, the details of which are as follows:

Direct labour cost per hour in both departments was £3.00.
Required:

(a) Calculate the overhead to be absorbed by both contract 1 and contract 2 using the direct labour cost method.

(b) Calculate the overhead to be absorbed using a machine hour rate for each department.

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Administration Depreciation of machinery Employer's national insurance Heating and lighting 000 100 Holiday pay Indirect labour cost Insurance: machinery property Machine maintenance Power Rent and rates Supervision 80 10 15 20 10 40 11 42 230 55 50 663 The company has four production departments: L, M, N and O. The following infor- mation relates to each department. Department L M N Total number of employees 400 300 200 100 Number of indirect workers 20 15 10 5 Floor space (square metres) 2000 1500 1000 1000 Kilowatt hours' power consumption 30000 50000 90000 60000 Machine maintenance hours 500 400 300 200 Machine running hours 92000 38 000 165000 27000 Capital cost of machines () 110000 40000 50000 200000 Depreciation rate of machines (on cost) 20% 20% 20% 20% Cubic capacity 60000 30000 10000 50000