Kedi Ltd has two production departments (Production Departments A and B) and one service department (Service Department C). The indirect costs for all three departments for the year ahead are estimated as follows: Indirect Labour 56,250 Indirect material 50,625 Heating and lighting 15,625 Rent and rates 18,750 Depreciation 35,000 Supervision 28,125 Power 22,500 Total 226,875 The following additional data are available: Total Production Department A Production Department B Service Department C Floor space (sq. metres) 31,250 12,500 15,000 3,750 Book value of machinery () 350,000 187,500 150,000 12,500 Number of employees 93 50 37 6 Kilowatt hours of power 11,250 5,625 5,000 625 Direct materials () 93,750 62,500 31,250 Direct labour () 57,500 31,250 26,250 Maintenance hours 8,750 5,000 3,750 Labour hours 13,150 7,900 5,250 Service Department C provides service to both Production Department A and Production Department B. Required: a) Allocate the production overhead costs over the two production departments and the service department and calculate the total costs across the three departments.

b) Apportion Service Department Cs costs over Production Departments A and B and calculate the total overhead costs for Production Departments A and B. [NOTE: Kedi Ltd uses labour hours as a basis for apportioning service department costs]. c) Calculate an overhead cost rate for each production department using labour hours as a basis. d) Using the overhead cost rates calculated in c), calculate the overhead cost that would be charged to a job which spends 4 labour hours in Production Department A and 5 labour hours in Production Department B.

e) Briefly state the difference between blanket overhead rates and departmental overhead rates. Discuss the potential reasons why Kedi Ltd is not using blanket overhead rates.