A factory with three departments uses a single production overhead absorption rate, expressed as a percentage of direct wages cost. It has been suggested that departmental overhead absorption rates would result in more 

accurate job costs. Set out below are budgeted and actual data for the previous period, together with information relating to job no. 650.

 

Direct wages

Direct labour hours

Machine hours

Production overheads

Budget:

Department

A

N$ 25 000

10 000

40 000

N$ 120 000

B

100 000

50 000

10 000

30 000

C

25 000

25 000

-

75 000

Total:

150 000

85 000

50 000

225 000

Actual

Department

A

N$ 30 000

12 000

45 000

N$ 130 000

B

80 000

45 000

14 000

28 000

C

30 000

30 000

-

80 000

Total:

140 000

87 000

59 000

238 000

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During this period job no. 650 incurred the actual costs and actual times in the departments as show below:

Direct Material

Direct wages

Direct labour

Machine

N$

N$

hours

hours

Department

A

120

100

20

40

B

60

60

40

10

C

10

10

10

-

It is company policy that one-third of total cost is added to production cost to arrive at gross profit.

Required:

Mark

2.1

Calculate the predetermined overhead rate (POR) using the current system

2

2.2

Using the POR obtained in 1.1 above, calculate the production overheads charged to job no 650, and state the production cost and expected gross profit on this job.

5

2.3

Compute departmental overhead absorption rates, using machine hours as basis for department A, and labour hours as basis for department B and C.

6

2.4

Use the departmental overhead absorption rates and calculate the production overheads charged to job no. 657.