Intermediate: Reapportionment of service department costs and a product cost calculation Shown below is an extract from next year’s budget for a company manufacturing three different products in three production departments:

The skilled operatives employed in the cutting department are paid £4 per hour and the unskilled operatives are paid £2.50 per hour. All the opera¬ tives in the machining and pressing departments are paid £3 per hour.

The company operates a full absorption costing system.
Required:

(a) Calculate, as equitably as possible, the total budgeted manufacturing cost of:
(i) one completed unit of Product A, and (ii) one incomplete unit of Product B which has been processed by the cutting and machining departments but which has not yet been passed into the pressing department. (15 marks)

(b) At the end of the first month of the year for which the above budget was prepared the production overhead control account for the machining department showed a credit balance. Explain the possible reasons for that credit balance.

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Product Product Product A B C Production (units) 4000 3000 6000 Direct material cost ( per unit) 7 4 9 Direct labour requirements (hours per unit): Cutting department: Skilled operatives Unskilled operatives Machining department Pressing department Machine hour requirements (hours per unit): 23134t SILAM 36122 3 5 1 Machining department 2 1 21/1