The ABC Co. has two production departments, machining and finishing, and two service departments, maintenance and materials handling.

The overhead budgets per 4-week period are $9000 for the machining department and $7500 for the finishing department. The machining department overhead is absorbed on a machine hour basis

(300 per period) and finishing department overhead is absorbed on the basis of direct labour hours

(3000 per period).

In estimating the overhead budgets of the production departments, service department costs have been dealt with as follows:

Maintenance Materials handling

%

60 30 10 30 50 20 machining dept finishing dept, and materials handling machine dept finishing dept, and maintenance dept During period VI, the machining department was in operation for 292 hours, and the number of direct labour hours worked by finishing department personnel was 31 00. Overhead incurred during period VI was as follows:

Materials Labour Other allocated costs REQUIRED Machining

$

2000 3000 600 Finishing

$

3000 900 400 Maintenence

$

1000 2000 800 Material handling 200 3000 300

(a) Write up the overhead account for each of the production departments for period VI, showing the disposition of any under-or over-absorption

(b) State the factors which gave rise to the under-or over-absorption and

(c) Analyse the under-or over-absorption under the headings you have stated in your answer to (b)

ACA, FE, Part B, Paper 6, Accounting 2, Costing, June 1975.