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Denman Enterprise prepared its overhead budget for the 31 August 2021. The entity produces an item that passes through three production departments and two service
Denman Enterprise prepared its overhead budget for the 31 August 2021. The entity produces an item that passes through three production departments and two service departments. The three production departments are Forming, Assembly and Packaging. The two service departments are Stores and Maintenance. The following budgeted overheads and budgeted activity levels are related to Denman Enterprise: Forming Assembly Packaging Stores Maintenance Overhead cost 1,125,000 1,350,000 2,362,500 900,000 600,000 Machine hours 187,500 165,000 300,000 Labour hours 281,250 187,500 360,000 It has been estimated that service department usage is as follows: Forming Assembly Packaging Stores Maintenance Stores 20% 40% 15% 25% Maintenance 45% 25% 20% 10% During the period ended 31 August 2021, actual overheads in the forming, assembly and packaging departments were as follows respectively: $1,087,500, $1,462,500 and $2,625,000; while, actual activity levels for all three were: Forming Assembly Packaging Machine hour 206,250 213,750 352,500 Labour hours 300,000 198,750 363,750 Required: (a) Use the reciprocal (simultaneous equation) method to derive the re-allocated overheads to production departments and derive the overhead absorption rates for these departments. (16 marks) (b) From the information calculate in part (a) above, derive the over /under absorption of overheads in each department (6 marks) (c) Calculate the selling price of Job 168 to the nearest $ based on the estimates below and using the overhead absorption rates calculated in (a) above. The company requires a profit of 25% of the selling price. Material 70 kilos @ $30 per kilo Direct Labour - Forming 10 hours @ $130 per hour Direct Labour - Assembly 7 hours @ $80 per hour Direct Labour - Packaging 6 hours @ $45 per hour Machine hours - Forming 10 Machine hours - Assembly 8 Machine hours - Packaging 5
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