e use of predetermined overhead absorption rates based on budgets is preferable to the use of absorptiondepartment The rates calculated from historical data available after the end of a financial period. During the year it e This is expected t Discuss this statement insofar as itrelates to the finanatal management of a business. (5 marks) calculating the cor quesDuring March ) that the a Machining Hand finisl CAEW PI AC Techniques IM3.6 Intermediate: Computation absorption rates and a cost company has prepared the following budgeted information for the of three different overhead -plus selling price. A manufacturing forthcoming year: (n) that the ac Direct material Direct labour Direct expenses Production overhead Administrative overhead Budgeted activity levels include: Machining Hand finishing 800000 200000 40000 600000 328000 in that the a (a) Calculate the year Budgeted production units Machine hours Labour hours 600000 50000 40000 ) Calcu each Com abso It has recently spent heavily on advanced technological machinery ar Creduced its workforce, As a consequence, it is thinking about chane actu its basis for overhead absorption from a percentage of direct labo cost to either a machine hour or labour hour basis. The administrev overhead is to be absorbed as a percentage of factory cost. Required io) State the compani (a) Prepare predetermined overhead absorption rates for IM3.8 Intermed overheads. A c production overheads based on the three different bases (6 marks) for absorption mentioned above. overhead absorption rate. organization should use giving reasons for your decision. (b) Outline the reasons for calculating a predetermined through the two (2 marks) departments ar There are two s (c) Select the overhead absorption rate that you think the the factory (3 marks) Predetermir labour hours, a The budgeted e just ended, incl overheads, was Budgeted direc (d) The company has been asked to price job AX, this job requires the following: Direct material 3 788 1100 422 120 220 Direct labour Direct expenses Machine hours for sealing. Service depart Labour hours Compute the price for this job using the absorption rate selected in (c) above, given that the company profit margin is equal to 10 per cent of the price. Maintenance (6 marks)Maintenance e) The company previously paid its direct labour workers on Maintenance time basis but is now contemplating moving over to an incentive scheme. Canteen Required: Draft a memo characteristics and a incentive scheme to the chief accountant outlining the general dvantages of employing a successful During the per were as follow AAT Cost Accounting and Budgeting (8