ONE The managing director of Marco Fabrication is concerned about the reliability and relevance of the product unit costs which have been used to date for general purposes. Shortly after your appointment as the firm's accountant you are required to write to him a report explaining your general approach to use of cost accounts and in particular the problems of overhead costing. You derive the following information for this purpose: The company has two producing departments, machining and assembly, and one service department, the canteen. Direct departmental overhead for the coming year is estimated as machining K50,000, assembly K40,000 and canteen K10,000. Details of estimated indirect overhead are as follows: Rates Depreciation Light and power Departmental data K1,000 K9,300 K600 No. of Cost of Kilowatt hours employee equipment Square feet Machining 600 20 K10,000 600 Assembly 1,100 10 K20,000 1,200 Canteen 300 5 K1,000 200 Estimated direct Estimated direct Estimated Labour hours hours machine Machining K10,000 18,000 8,000 Assembly K15,000 12,000 20,000 The above activity levels are based on what could be attained if production was at full capacity. Expected activity for the coming year is estimated to be 70 per cent full capacity, and normal activity at 80 percent