Reapportionment of service department overheads and a calculation of under-/overrecovery of overheads An organization has budgeted for the following production overheads for its production and service cost centres for the coming year:

The product passes through the machining, assembly and paint shop cost centres and the following data relates to the cost centres:

Required:

(a) Apportion the production overhead costs of the service cost centres to the production cost centres and determine predetermined overhead absorption rates for the three production cost centres on the following basis:
Machining— Machine hours.
Assem—b Llabyour hours.
Paint shop— Labour costs. (11 marks)

(b) Actual results for the production cost centres were:

Prepare a statement showing the under-/overabsorption per cost centre for the period under review.

(c) Explain why overheads need to be absorbed upon pre-determined bases such as the above.
Consider whether these bases for absorption are appropriate in the light of changing technology, suggesting any alternative basis that you consider appropriate.

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Cost centre () Machining 180 000 Assembly 160 000 Paint shop 130 000 Engineering shop 84 000 Stores 52 000 Canteen 75 000