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5 Phoebe Ltd manufactures many different product which pass through two production cost centres (P1 and P2). There are also two service cost centres (S1
5 Phoebe Ltd manufactures many different product which pass through two production cost centres (P1 and P2). There are also two service cost centres (S1 and S2) in the factory. The following information has been extracted from the budget for the coming year: PL P2 $1 $2 (K) (K) (K) (K) Allocated and apportioned 477,550 404,250 132,000 96.000 Production overheads Number of Employees 30 65 10 15 Total machine hours 68,000 11,400 Total direct labour hours 4,000 14,000 Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3 respectively. Required: (a) Calculate: () The machine hour absorption rate for cost centre P1, and (4 marks) (ii) The direct labour absorption rate for cost centre P2. (4 marks) (b) Critically consider the purpose of calculating production overheads absorption rates. (4 marks) (c) Explain the difference between production overheads that have been allocated' and those which have been 'apportioned' to cost centres. Explain why some manufacturing companies are able to allocate electric power costs to production cost centres, whereas others can only apportion them. (6 marks) (d) Explain why indirect costs are not directly traced to cost objects in the same way as direct costs. marks) (Total = 20 marks) (2
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