Intermediate: Overhead analysis sheet and calculation of overhead rates Dunstan Ltd manufactures tents and sleeping bags in three separate production departments. The principal manufacturing processes consist of cutting material in the pattern cutting room, and sewing the material in either the tent or the sleep¬ ing bag departments. For the year to 31 July cost centre expenses and other relevant information are budgeted as follows:

Requirements:

(a) Prepare in columnar form a statement calcu¬
lating the overhead absorption rates for each machine hour and each direct labour hour for each of the three production units. You should use bases of apportionment and absorption which you consider most appropriate, and the bases used should be clearly indicated in your statement. (16 marks)

(b) ‘The use of pre-determined overhead absorp¬ tion rates based on budgets is preferable to the use of absorption rates calculated from histor¬ ical data available after the end of a financial period.’ Discuss this statement insofar as it relates to the financial management of a business.

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Indirect Cut- ting Sleep- Raw ing material Can- Main- Total room Tents bags stores teen tenance () () () () () () () wages Consumable 147 200 6400 19 500 20 100 41 200 15 000 45 000 materials 54 600 5300 4 100 2300 18 700 24 200 Plant depreciation 84 200 31 200 17 500 24 600 2500 3.400 5.000 Power 31 700 Heat and light 13 800 Rent and rates 14 400 Building insurance 13 500 Floor area (sq. ft) Estimated 30.000 8 000 10 000 7000 1500 2500 1000 power usage (%) 100 17 38 32 3 8 Direct labour (hours) 112 000 7000 48 000 57 000 Machine usage (hours) 87 000 2000 40 000 45 000 Value of raw material issues (%) 100 62.5 12.5 12.5 12.5