Question 2 Costing (a) Tonto Limited is a manufacturing company which uses two production departments (machining and finishing) to make its products. It also has two service departments (canteen and machine maintenance). Shown below are next year's budgeted manufacturing overhead costs and other additional data: Budgeted manufacturing overheads Rent and rates Insurance of building Heating and light Depreciation of equipment Production department's supervisors salaries Total In addition to the above certain other manufacturing overheads have already been allocated to each department as follows: 150,000 55,500 74,000 42,000 69,000 390,500 Additional Data: Machining Finishing Canteen Allocated overheads () 27,175 13,935 3,260 Book value of equipment () 350,000 250,000 Number of employees 24 16 Floor area (square metres) 2,750 1,350 Machine Maintenance 2,430 Machining Finishing Canteen 4 600 Machine Maint. 6 300 Required: (i) Allocate or apportion each of the manufacturing overheads to the four departments showing clearly the basis used for each production overhead. Show also the total allocation/apportionment for each department. (10 marks) (ii) Tonto Limited apportions service department costs to production departments using a method that fully recognises any work done by one service centre for another. What are the total manufacturing overheads for the machining and finishing departments after the re- apportionment of all service department overheads? (3 marks) (iii) If the estimated machine hours for the machining department for next year are 40,000 hours and for the finishing department are 14,300 hours calculate overhead absorption rates based on machine hours for each of the two production departments. (2 marks) (iv) Calculate the selling price of I unit of product XTC given the following information. Direct Materials Direct labour: Machining dept. Direct labour: Finishing dept. Product XTC Product XTC is sold at cost plus 20%. 9 per unit 16 per unit 20 per unit Machining department machine hours per unit Finishing department machine hours per unit 4 hours 2 hours (3 marks) (b) Orion Limited had total overheads for a month of 24,000. The total monthly budgeted labour hours were 1,200 and the total budgeted material usage was 1,600 kg. During the month the company gives a quotation for a job which requires 60 kg of materials at 7.50 per kg and 12 direct labour hours at 25 per hour. Overheads are recovered on the basis of direct labour hours. The profit is 25% based on selling price. (i) if the actual direct labour hours worked on the job were 15, what would be the new profit, assuming that the quoted selling price could not be renegotiated? (4 marks) (ii) if overheads were instead recovered based on material usage rather than labour hours, would that have changed your answer to part (i) above, if so what would be the new profit? (3 marks) (c) "Managing costs is very important given the competitive environment in which modern businesses operate". Discuss this statement including in your discussion some of the recent approaches to costing which have emerged to help businesses manage their costs (maximum 600 words). (25 marks)