FIFO Limited has gathered the following information:

Dept A Dept B Dept C

Value of machinery R600 000 R300 000 R150 000

Material usage R200 000 R150 000

Floor area (2) 2 000 1 200 400

Number of employees 500 300 100

Machine hours 5 000 8 000 1 000

Kilowatt-hours 9 000 7 000 2 000

Departments A and B are production departments, and department C is a service department.

Machine hours are used as a basis for the secondary allocation. The following expenses were

incurred during the first production year.

Insurance on buildings R120 000

Depreciation of machinery R75 000

Cafeteria costs R37 500

Water and electricity R115 500

Required:

a) Allocate the overheads to the different departments. Show both the primary as well as the

secondary allocation of the overheads. (20)

b) Calculate the overhead allocation rates for Department A based on material usage, and for

Department B, based on machine hours. (5)