16.7* Bank Limited has several production departments. In the assembly department it has been estimated that £250 000 of overhead should be charged to that particular department.

It now wants to charge a customer for a specific order. The data relevant are:

Assembly department Specific unit Number of units 50000 –

Direct material cost (£) 500000 8.00 Direct labour cost (£) 1000000 30.00 Prime cost (£) 1530000 40.00 Direct labour hours 100000 3.5 Machine hours 25000 0.75 The accountant is not sure which overhead absorption rate to adopt.

Required:

Calculate the overhead to be absorbed by a specific unit passing through the assembly department using each of the following overhead absorption rate methods:

1 specific units;

2 percentage of direct material cost;

3 percentage of direct labour cost;

4 percentage of prime cost;

5 direct labour hours; and 6 machine hours.