BCD ltd manufactures office and household furniture to customers' specifications. Because of the specialized nature of the manufacturing process, each job is treated separately for costing purposes. There are two stages in the manufacture of each item namely, Assembly and Finishing. In the assembly department, overheads are absorbed on the basis of prime cost incurred in that department. In the finishing department, overheads are applied on the basis of total accumulated cost on the job in both the two stages inclusive of overhead absorbed in assembly. The selling price of the item is then determined by applying the usual 40% profit margin.

The following information is provided about budgeted data for the next financial period:

Assembly Finishing

Materials ksh. 480,000 300,000

Overheads ksh. 594,000 418,500

Labour cost ksh 180,000 120,000

Labour hours 3,000 1,500

Required:

a) Calculate the overhead absorption rates for each production process.( 2 Marks)

b) Job no. 148 shows the following data concerning its production:

Assembly Finishing

Materials shs. 5,000 3,500

Labour cost shs. 2,700 1,600

Labour hours 12 4

Required:

Prepare the cost statement for this job and indicate the proposed final selling price.

( 4 Marks)

c) The following data relates to the actual manufacturing operations as accumulated for the whole financial period:

Assembly Finishing

Overhead incurred shs. 660,000 450,000

Materials shs. 530,000 288,000

Labour cost shs. 200,000 135,000

Labour hours 3,450 1,650

Required:

Calculate the amount of overhead over applied or under applied for the company as a whole.(3 Marks)

d)Comment on the overhead absorption rates used by the company in light of the results obtained in (c) above.(1 Mark)

(Total:10 Marks)