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Mickel Ltd is a company that manufactures machine parts. The company has three (3) Production Departments and one (1) Service Department. The following information is

Mickel Ltd is a company that manufactures machine parts. The company has three (3) Production Departments and one (1) Service Department. The following information is for the year ended 31 December 2014.

Dept. A

Dept. B

Dept. C

Service

Total

$

$

$

$

$

Indirect Wages Other Cost

4 000

6 000

9 150

3 350

225 000

Storekeeping

16 000

Rent

10 500

Light and heat

7 000

Power

18 000

Depreciation

40 000

Insurance: Plant

1 000

340 000

You ascertain the following information:

Dept. A Dept. B Dept. C Service

Area (m2) 7 500

11 250 10 000 6 250

Book Value of Plant $70 000

$90 000 $ 5 000 $35 000

No. of store requisitions 90

60 50 --

Effective Horse Power 40

50 5 10

Direct Labour Hours 50 000

40 000 110 000 --

Direct Labour Cost $25 000

$30 000 $ 45 000 --

Machine Hours 35 000

45 000 5 000 --

Required:

a. Analyse the above indirect costs between the departments showing the bases of apportionment you have used.

b. Re-apportion the costs of the Service Department over the three (3) Production Departments using appropriate bases.

c. Calculate an Overhead Absorption Rate (OAR) for the production departments based on direct labour cost.

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