QUESTION 5 (40 MARKS) Bino Ltd produces suits in three separate production departments (viz. Cutting, Sewing and Finishing). Production is serviced by three service centres (viz. Material store, Canteen and Maintenance). The Material store cost centre's costs are apportioned to other departments using the direct method while the reciprocal method based on simultaneous equations is used to apportion Canteen and Maintenance centres costs. The Maintenance costs are apportioned based on floor area. It is Bino's policy to set selling prices to ensure a profit margin of 30% on sales. The company received a new order for 1 000 suits which will require the following costs: Cost Quantity and price Material- fabric | 1 500 metres costing N$ 20 per metre Direct labour 2 000 hours at a rate of N$30 per hour Administration and selling costs 10% of production costs The following hours will also be needed for the 1 000 suits. Cutting Sewing Direct Labour Hours 1 000 300 Machine hours 700 500 Finishing 700 3:00 200 Budgeted expenses and other details for the year ended 28 February 2020 were as follows: Table 1: Budgeted manufacturing costs and overhead allocation bases. Material Total Cutting Sewing Finishing store I Canteen Maintenance N$ N$ | N$ | N$ N$ | N$ | N$ 120 Direct wages (NS) 000 50 000 30 000 40 000 100 Indirect wages (NS) 000 10 000 20 000 20 000 32 000 10 000 8 000 Consumables (NS) 50 000 5 000 4000 20 000 15 000 6 000 Depreciation - Equip. (NS) 90 000 ? Fuel (NS) 30 000 ? 7 ? Heat and light (NS) 15 000 ? ? Rental and prop. Taxes (NS) 45 000 ? ? 300 Equipment Value (NS) 000 000 60 000 100 000 10 000 10 000 Number of Employees 250 100 100 101 10 Floor space used (m) 30 000 9000 9000 8 000 2000 1000 Fuel usage (%) 100 30 101 40 105 25 Page 20 of 27 Direct labour hours Machine hours Material issues (%) 100 000 90 000 100 8 000 15 000 6 0 50 000 45 000 15 42 000 30 000 15 It is company policy to allocate/(absorb) manufacturing overheads in the cutting department based on direct labour hours while the manufacturing overheads in the sewing and finishing departments are allocated/(absorbed) based on machine hours Mark Required: Using examples that relate to this question, explain the difference between apportionment of overheads and allocation (or absorption) of overheads. Perform a primary apportionment of production overheads to respective departments clearly showing the basis of apportionment. Answers without bases of apportionment will be regarded as guesswork and will not get any mark
