How to calculate the apportioned by floor area and reapportion HRT cost by number of stuff?
EXAMPLE 12.7 A business consists of four cost centres: - Preparation department - Machining department - Finishing department . Human resources and training (HRT) department. The first three are product cost centres and the last renders a service to the other three. The level of service rendered is thought to be roughly in proportion to the number of employees in each product cost centre. Overheads, and other data, for next month are expected to be as follows: Rent Electricity to power machines Electricity for heating and lighting Insurance of building Cleaning Depreciation of machines Total monthly salaries of the indirect workers: Preparation department Machining department Finishing department HRT department 540 4,600 3,000 1,800 200 600 2,000 600 720 540 The HRT department has a staff consisting of only indirect workers (including managers). The other departments have both indirect workers (including managers) and direct workers. There are 100 indirect workers within each of the four departments and none does any 'direct' work. EXAMPLE 12.7 Preparation department 600 Machining department 900 Finishin de artment 500 continued Machining department direct workers are paid $36 an hour; other direct workers are paid $30 an hour Each direct worker is expected to work 160 hours next month. The number of direct workers in each department is: All of the machinery is in the machining department. Machines are expected to operate for 120,000 hours next month. The floorspace (in square metres) occupied by the departments is as follows: Preparation department 16,000 Machining department 20,000 Finishing department 10,000 HRT department Deducing the overheads, cost centre by cost centre, can be done, using a schedule, as follows: Total $'ooo Prep'n s'ooo Mach'g $'ooo Fin'g $'ooo $'ooo Allocated cost: Machine power 3,000 3,000 Machine depreciation 2,000 2,000 Indirect salaries 2,400 600 720 540 540 Apportioned cost Rent 4,600 Heating and lighting 1,800 Insurance of buildings 200 Cleaning 600 Apportioned bx floor area 7,200 2,400 3,000 1,500 Cost centre overheads 14,600 3,000 8,720 2,040 Reapportion HRT cost by number of staff (including the indirect workers) Now let us assume that the machining department overheads are to be charged to jobs on a machine hour basis, but that the direct labour hour basis is to be used for the other two departments. What will be the full (absorption) cost of a job with the following characteristics? Preparation Machining Finishing department department Department 10 7 5 Direct labour hours Machine hours Direct materials ($) This should be tackled as if each cost centre were a separate business, then departmental cost elements are added together for the job so as to arrive at the total full cost. First, we need to deduce the indirect (overhead) recovery rates for each cost centre: Preparation department (direct labour hour based): $3,256,000/(600 x 160) = $33.91 per hour
