Calculation of overhead absorption rates and under-/over-recovery of overheads A manufacturing company has two production cost centres (Departments A and B) and one service cost centre (Department C) in its factory. A predetermined overhead absorption rate (to two decimal places of £) is established for each of the production cost centres on the basis of budgeted overheads and budgeted machine hours.

The overheads of each production cost centre comprise directly allocated costs and a share of the costs of the service cost centre.

Budgeted production overhead data for a period is as follows:

70% of the actual costs of Department C are to be apportioned to production cost centres on the basis of actual machine hours worked and the remainder on the basis of actual direct labour hours.
Required:

(a) Establish the production overhead absorption rates for the period. (3 marks)

(b) Determine the under- or over-absorption of production overhead for the period in each production cost centre. (Show workings clearly.) (12 marks)

(c) Explain when, and how, the repeated distribution method may be applied in the overhead apportionment process.

Transcribed Image Text:

Department Department Department A B C Allocated costs 217860 374 450 103 970 Apportioned costs 45 150 58 820 (103 970) Machine hours 13 730 16110 Direct labour hours 16.360 27 390 Actual production overhead costs and activity for the same period are: Department Department Department A B C Allocated costs 219917 387 181 103 254 Machine hours 13672 16953 Direct labour hours 16402 27568