Outlane Limited’s overhead budget for 2019 is as follows:

The company has four production departments: L, M, N and O. The following information relates to each department. 

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. 

Transcribed Image Text:

Administration Depreciation of machinery Employer's national insurance Heating and lighting Holiday pay Indirect labour cost Insurance: machinery property Machine maintenance Power Rent and rates Supervision £000 100 80 10 15 20 10 40 11 c/f 286 £000 b/f 286 42 230 55 50 663