Country Australia - Subject Management Accounting

Please help me with this question,

1. Big Gear Manufacturing Pty Ltd has two production departments, Machining and Finishing, and a service department, Stores.

Previously, Big Gear Manufacturing has used a single, factory-wide overhead application rate. Recently the owner, Hamish Gear, has approached you to discuss ways the business can charge overheads to products more accurately. In your role as the Cost Accountant, you agreed to establish a process for developing overhead application rates by department to accomplish this.

Estimates of direct departmental factory overheads and the factory-wide overheads for the year are below.

Factory overhead budget July - June		$	$
Indirect labour
	Machining			9,900
	Finishing			18,050
	Stores			5,400	33,350
Indirect materials
	Machining			12,900
	Finishing			14,900
	Stores			75,000	102,800
Insurance on premises				2,400
Staff amenities				20,000
Council rates (factory)				4,200
Electric power for machinery			15,000
Depreciation - machinery				15,000
Insurance on machinery				2,500
Material handling costs				9,000
Total factory overhead budget			204,250

Additional Information:

• As part of this process, you are required to obtain operating statistics from relevant sources within the organisation. Organisational statistics can be found with your assessment documents in Connect.
• You are also required to locate and download the approved organisational template to prepare the budgets. Organisational templates can be found with your assessment documents in Connect.
• Consultations with the managers from each production department determined that the most appropriate cost driver for the Machining department is Machine hours, while direct labour cost shall be used for the Finishing Department.

Required:

1. Obtain the relevant statistics and operating data you will use to allocate the factory-wide overheads to each department.
2. Prepare the overhead budget by department using the approved organisational template (separate document).
3. Allocate the service department costs to the production departments.
4. Calculate the factory overhead application rate for the production departments based on your discussions with the managers of the production departments.
5. In a brief report, confirm with Hamish that you have prepared overhead application rates by department as he requested (you should state the relevant overhead rates).In your report, outline the process you followed and the resources you used. Finally, briefly explain to Hamish why you think your process should be adopted as the new system to generate departmental overhead application rates.

Please see below templates provided. Appreciate if you can use the same format below.

Big Gear Manufacturing Pty Ltd Departmental Statistics/operating data Machining Finishing Stores Floor space (sq m) 2,000 8,000 2,000 Number of employees 5 10 5 Power usage 55% 45% Value of machinery S 80,000 S 170,000 Number of materials requisitions 1,200 600 Direct labour cost 5 165,000 $ 370,000 Machine hours 8,000 4,000 Big Gear Manufacturing - Factory Overhead Budget Department Budget Allocation base Machining Finishing Store Total FOH Direct departmental overhead budget Indirect labour Indirect materials Total direct departmental costs Indirect department costs Insurance on premises Staff amenities Council Rates (factory) Electric power for machinery Depreciation - machinery Insurance on machinery Material handling costs Total indirect costs TOTAL DEPARTMENTAL FOH BUDGET REALLOCATION OF SERVICE DEPT COSTS Storeroom REVISED TOTAL FOH BUDGET Cost driver volume Departmental overhead rateInspired Ltd Performance report - Facotry Overhead Factory overhead applied: Actual factory overhead: Over/under applied FOH: Actual FOH Flexible Budget FOH Applied Fixed FOH Variable FOH Total F.B. Spending Variance Capacity Variance Total Variance