Return to the start of Exhibit 4.1 and try to work the example for yourself. It is very important for later chapters that you understand the purpose of Exhibit 4.1 and the method of calculation used. There are some features of the tables in Exhibit 4.1 which are worth noting for future reference. First, it is important to keep totals for each column of figures and a total of all the column totals in order to ensure that there are no arithmetic errors that result in costs appearing from nowhere or disappearing to oblivion. Second, it is important to show working notes at all times because there are so many variations of possible method that the person who reads your calculations will need the working notes to understand the method chosen.

Exhibit 4.1

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Table 1 sets out the indirect costs incurred by the business on behalf of all departments taken together. The costs must be apportioned (shared) over the departments because there is insufficient information to permit allocation of costs as a whole. Table 2 sets out relevant information about each department which will be used in the process of determining an over- head cost rate. Table 1 Indirect costs incurred by the business Cost item Indirect materials Indirect labour Rent Insurance Depreciation Total Total cost this month 36,000 40,000 1,000 1,600 2,000 80,600