The following details have been extracted from the ledgers and records of Charles Ltd. Departmental overhead information
Question:
The following details have been extracted from the ledgers and records of Charles Ltd.
Departmental overhead information
The management accountant has prepared a study that shows that the repair costs of machinery and equipment relate directly to the idle time.
The materials ratio has been determined as a result of extensive statistical analysis, and is the basis on which materials costs are to be apportioned.
The cost of lighting varies in direct proportion with the power costs of all departments.
Maintenance costs relate to the total time worked in each department.
Machine hours are part of the labour hours.
The depreciation cost of 15,000 relates to both buildings and machinery.
For the reapportionment of service department overheads, the details that follow are relevant:
OARs are based on the most appropriate employee hours basis.
Job ab123c has just passed through Charles Ltd’s production processes. The details of the job have been passed to the accounting department, and they are: direct materials amounting to £1,300 were issued to and used by the job (there were no returns of these materials); direct labour time costing £750 has been allocated to the job; additionally, the time spent on job ab123c has been recorded on the relevant time sheets as:
10 hours in dept M 20 hours in dept T 35 hours in dept F During the period under review, the total overheads absorbed by production amounted to:
Required
(a) Prepare the overhead distribution summary for Charles Ltd from the information supplied.
(b) Reapportion the service department overheads into the production department overheads.
This part of the question is to be based on your solution to part
(a) of the question and the relevant additional information given in the question. You may use any, or all, of the repeated distribution, simultaneous equations and matrix algebra methods.
(c) Calculate to three decimal places the appropriate overhead absorption rates (OARs) for production departments M, T, and F.
(d) Prepare a summary job cost card for job ab123c.
(e) Determine the under or overrecovery of overheads for each production department based on the relevant actual information supplied.
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