QUESTION 3: Starbeam Ltd (Starbeam) has been trading for many years and manufactures just one product, the Mek, in a factory divided into two production departments, Primary and Finishing. Starbeam also has two service departments, Maintenance and Stores. Starbeam's accountant has prepared a budget for its next quarter (July to September). Details of budgeted overheads are as follows: Total ($) Wages of supervisor of Primary department 10,000 Wages of supervisor of Finishing department 10,000 Wages of supervisors of Maintenance department 12,500 Wages of supervisor of Stores department 6,250 Depreciation of Primary department 5,750 Depreciation of Finishing department 8,500 Heat and light 20,000 Repairs of buildings 10,000 Machinery depreciation 50,000 Rent and rates 40,000 Canteen 12,000 Machinery insurance 30,000 Details of each department are as follows: Primary Finishing Maintenance Floor area (m2) 6,000 4,000 3,000 Stores 2,000 Total 15,000 48,000 20,000 8,000 4,000 80,000 Machinery book value ($) Number of employees 50 40 20 10 120 Stores 1,000 Total 10,000 Service departments' services were used as follows: Primary Finishing Maintenance Maintenance hours 5,000 4,000 worked Number of stores 3,000 1,000 1,000 requisitions 5,000 Details of the product are as follows: Variable materials Variable labour Variable production overheads $ per unit 50 20 10 Budgeted sales and production are 4,300 units. Production overheads are absorbed using a rate per unit. Starbeam set the selling price per unit using a target mark-up of X% on the full production cost per unit. Starbeam's accountant is aware from the past experience that the company's sales, distribution and administration costs are partly fixed and partly variable as follows: Variable $10 per unit Fixed $30,000 per month Inventory at the end of June was 115 Meks. In the quarter July to September, Starbeam manufactured 4,200 Meks and sold 4,215. Starbeam's budgeted fixed costs are incurred evenly per month. Starbeam's actual cost and selling price were as budgeted except for the fixed element of the selling, distribution and administration costs, which were 5% higher than budgeted. Required: 1. Calculate the fixed overhead absorption rate in each production department? 2. Choose an appropriate value for X so that the Starbeam is making a profit? 3. Prepare Starbeam's income statement for the quarter July to September under absorption costing (using the following template). Enter costs as negative values? $ $ Revenue Variable production cost Fixed production cost absorbed Opening inventory Closing inventory Production cost of sales Under/over absorption Variable selling, distribution and administration costs Fixed selling, distribution and administration costs Profit 4. Calculate Starbeam's marginal costing profit? (Note: Show all your workings)
