Intermediate: Reapportionment of service department overheads and a calculation of under/over-recovery of overheads An organization has budgeted for the following production overheads for its production and service cost centres for the coming year:

The product passes through the machining, assembly and paint shop cost centres and the following data relates to the cost centres:

Required:

(a) Apportion the production overhead costs of the service cost centres to the production cost centres and determine predetermined over¬ head absorption rates for the 3 production cost centres on the following basis:
Machining - Machine hours.
Assembly - Labour hours.
Paint shop - Labour costs.

(b) Actual results for the production cost centres were:

Prepare a statement showing the under/over absorption per cost centre for the period under review. (7 marks)

(c) Explain why overheads need to be absorbed upon pre-determined bases such as the above. Consider whether these bases for absorption are appropriate in the light of changing tech¬ nology, suggesting any alternative basis that you consider appropriate.

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Cost centre Machining Assembly Paint shop 180000 160 000 130000 Engineering shop 84 000 Stores Canteen 52000 75 000