Bookdon Public Limited Company manufactures three products in two production departments, a machine shop and a fitting section; it also has two service departments, a canteen and a machine maintenance section. Shown below are next year's budgeted production data and manufacturing costs for the company

It has been estimated that approximately 70% of the machine maintenance section's costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.
Required:

(a) (i) Calculate the following budgeted overhead absorption rates:
A machine hour rate for the machine shop.
A rate expressed as a percentage of direct wages for the fitting section.
All workings and assumptions should be clearly shown.

(ii) Calculate the budgeted manufacturing overhead cost per unit of product X.

(b) The production director of Bookdon PLC has suggested that 'as the actual overheads incurred and units produced are usually different from that budgeted and as a consequence profits at each month end are disorted by over/under absorbed overheads, it would be more accurate to calculate the actual overhead cost per unit each month end by dividing the total number of all units actually produced during the month into the actual overheads incurred.·
Critically examine the production director's suggestion.

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Product X Product Y Product Z Production Prime cost: Direct materials 4200 units 6900 units 1700 units 11 per unit 14 per unit 17 per unit Direct labour: Machine shop 6 per unit 4 per unit Fitting section 12 per unit 3 per unit Machine hours per unit 6 hours per unit 3 hours per unit 2 per unit 21 per unit 4 hours per unit Machine Machine Fitting maintenance shop section Canteen section Total Budgeted overheads (): Allocated overheads Rent, rates, heat and light 27660 19470 16600 26650 90 380 17000 Depreciation and insurance of equipment 25000 Additional data: Gross book value of equipment () 150 000 75000 30 000 45 000 Number of employees 18 14 4 4 Floor space occupied (square metres) 3600 1400 1000 800