Question 2 Brunel Engineering Ltd has two production cost centres: The Welding Department and the Assembly Department. The Maintenance Department provides services to the production cost centres. The budget has allocated the annual cost of indirect materials as 26,000 to Welding, 10,000 to Assembly and 12,000 to Maintenance. The budgeted indirect labour costs for the year have been allocated as 54,000 to Welding, 46,000 to Assembly and 14,000 to Maintenance. However, it has not been possible to trace the following budgeted annual production overheads directly to the production cost centres: Lighting and heating Power Rent Insurance of buildings Insurance of machines Depreciation of machines 32,000 56,000 128,000 32,000 40,000 5,000 The following information is also available: . . The estimated number of employees is 330 in Welding, 240 in Assembly and 90 in Maintenance. The estimated direct labour hours are 97,500 in Welding, 30,000 in Assembly and 22,500 in Maintenance. The floor area of Welding is 30,000 square feet, the floor area of Assembly is 24,000 square feet and the floor area of Maintenance is 6,000 square feet. The carrying amount of machines is 340,000 in Welding and 60,000 in Assembly. The estimated machine hours are 115,200 in Welding and 44,800 in Assembly. Maintenance services are likely to be used 60% by Welding and 40% by Assembly. . Required a) Prepare a production overhead analysis for Brunel Engineering Ltd showing the allocation and apportionment of overheads to the cost centres. Include the basis of apportionment. (16 marks) b) Calculate the machine hour overhead absorption rate for the Welding department and the direct labour hour overhead absorption rate for the Assembly department. (4 marks) c) Explain the problems of using an overhead absorption rate that is based on estimates. (5 marks) (Total 25 marks) Question 2 Brunel Engineering Ltd has two production cost centres: The Welding Department and the Assembly Department. The Maintenance Department provides services to the production cost centres. The budget has allocated the annual cost of indirect materials as 26,000 to Welding, 10,000 to Assembly and 12,000 to Maintenance. The budgeted indirect labour costs for the year have been allocated as 54,000 to Welding, 46,000 to Assembly and 14,000 to Maintenance. However, it has not been possible to trace the following budgeted annual production overheads directly to the production cost centres: Lighting and heating Power Rent Insurance of buildings Insurance of machines Depreciation of machines 32,000 56,000 128,000 32,000 40,000 5,000 The following information is also available: . . The estimated number of employees is 330 in Welding, 240 in Assembly and 90 in Maintenance. The estimated direct labour hours are 97,500 in Welding, 30,000 in Assembly and 22,500 in Maintenance. The floor area of Welding is 30,000 square feet, the floor area of Assembly is 24,000 square feet and the floor area of Maintenance is 6,000 square feet. The carrying amount of machines is 340,000 in Welding and 60,000 in Assembly. The estimated machine hours are 115,200 in Welding and 44,800 in Assembly. Maintenance services are likely to be used 60% by Welding and 40% by Assembly. . Required a) Prepare a production overhead analysis for Brunel Engineering Ltd showing the allocation and apportionment of overheads to the cost centres. Include the basis of apportionment. (16 marks) b) Calculate the machine hour overhead absorption rate for the Welding department and the direct labour hour overhead absorption rate for the Assembly department. (4 marks) c) Explain the problems of using an overhead absorption rate that is based on estimates. (5 marks) (Total 25 marks)
