QUESTION 3

Deal Ltd makes two products, A and B. Both products pass through the Assembly Department. In March 2018, it makes 1,000 of A and 1,000 of B. The Assembly Department overheads for the month were:

USD

Indirect wages 6,000

Rent 12,000

Light and heat 4,000

Insurance of premises 2,000

Machinery depreciation 3,000

Total overheads for the month 27,000

Compile overheads to be added to each unit of A and each unit of B. [ 2 Marks]

If product A requires twice the amount of time to assemble as B, calculate the overheads each unit of A and each unit of B will absorb. [7 Marks]

Discuss the appropriateness (or lack of it) of Overhead Absorption Rates (OAR) principle in Managerial Decision Making. [10 Marks]

(b) Process costing, contract costing and job costing are approaches to costing. Under what circumstances is each of the principle appropriate and inappropriate? [6 Marks]