Reapportionment of service department costs, Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2). There are also two service cost centres

(S1 and S2) in the factory. The following information has been extracted from the budget for the coming year:

Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3 respectively.
Required:

(a) Calculate:
(i) | the machine hour absorption rate for cost centre P1, and (ii) the direct labour hour absorption rate for cost centre P2.

(b) Explain the difference between production overheads that have been ‘allocated’ and those which have been ‘apportioned’ to cost centres. Explain why some manufacturing companies are able to allocate electric power costs to production cost centres, whereas others can only apportion them.
ACCA Financial Information for Management

Transcribed Image Text:

Allocated and apportioned production overheads P1 P2 S1 477 550 404 250 132000 $2 96000 10 15 Number of employees 30 65 Total machine hours 68000 11400 Total direct labour hours 4000 14000