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 contre'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$30 per hour Administration and selling costs 10% of production costs The following hours will also be needed for the 1 000 Suits Cutting Sewing Direct Labour Hours 1 000 300 Machine hours 700 500 Finishing 700 200 NS Budgeted expenses and other details for the year ended 28 February 2020 were as follows: Table 1: Budgeted manufacturing costs and overhead allocation bases. Material Total Cutting Sewing Finishing store Canteen Maintenance NSNS NS NS NS NS 120 Direct wages (NS) 000 50 000 30 000 40 000 100 Indirect wages (NS) 000 10 000 20 000 20 000 32 000 10 000 8 000 Consumables (N$ 50 000 5 000 4 000 20 000 15 000 6000 Depreciation - Equip. (NS) 90 000 ? ? ? Fuel (NS) 30 000 ? ? ? ? Heat and light (NS) 15 000 ? ? ? ? Rental and prop. Taxes (NS) 300 Equipment Value (NS) 000 000 60 000 100 000 10 000 10 000 Number of Employees 250 25 100 100 10 10 Floor space used (m) 30 000 9 000 9 000 8 000 2000 1000 Fuel usage%) 100 30 10 40 105 100 Page 20 of 27 100 Direct labour hours Machine hours Material issues (%) 000 8000 50 000 90000 15000 45000 1000015 42 000 30 000 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 5.2 mark. 10 Now assume that the primary apportionment has been correctly done for you as follows: Table 2: Primary allocation of production overheads Material Total Cutting Sewing Finishing store Canteen Maintenance N$ NS NS Total overheads 330 000 72000 63 000 98000 42000 31500 23 500 NS NS Required: Mark Using the primary apportioned overheads in Table 2, and any relevant information from the question including Table 1. perform a secondary overhead 5.3 apportionment of service departmental overheads to production departments 10 using c) appropriate basis of apportionment and applicable method(s) of apportioning Service departmental overheads to production departments Calculate the predetermined overhead rates to be used in each of the three production departments 56 Determine the sales value of the 1000 suits ordered Assuming that for the year ended 28 February 2019 the actual manufacturing overheads for the sewing department were N$110 000, actual machine hours were 14 000 hours and actual direct labour hours were 9 000 hours, calculate the over under absorption of manufacturing overheads in the sewing departments Page 21 of 27 5.8 Explain how under/over recoveries of overheads arise and why pre-determined overhead rates are used. Total 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 contre'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$30 per hour Administration and selling costs 10% of production costs The following hours will also be needed for the 1 000 Suits Cutting Sewing Direct Labour Hours 1 000 300 Machine hours 700 500 Finishing 700 200 NS Budgeted expenses and other details for the year ended 28 February 2020 were as follows: Table 1: Budgeted manufacturing costs and overhead allocation bases. Material Total Cutting Sewing Finishing store Canteen Maintenance NSNS NS NS NS NS 120 Direct wages (NS) 000 50 000 30 000 40 000 100 Indirect wages (NS) 000 10 000 20 000 20 000 32 000 10 000 8 000 Consumables (N$ 50 000 5 000 4 000 20 000 15 000 6000 Depreciation - Equip. (NS) 90 000 ? ? ? Fuel (NS) 30 000 ? ? ? ? Heat and light (NS) 15 000 ? ? ? ? Rental and prop. Taxes (NS) 300 Equipment Value (NS) 000 000 60 000 100 000 10 000 10 000 Number of Employees 250 25 100 100 10 10 Floor space used (m) 30 000 9 000 9 000 8 000 2000 1000 Fuel usage%) 100 30 10 40 105 100 Page 20 of 27 100 Direct labour hours Machine hours Material issues (%) 000 8000 50 000 90000 15000 45000 1000015 42 000 30 000 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 5.2 mark. 10 Now assume that the primary apportionment has been correctly done for you as follows: Table 2: Primary allocation of production overheads Material Total Cutting Sewing Finishing store Canteen Maintenance N$ NS NS Total overheads 330 000 72000 63 000 98000 42000 31500 23 500 NS NS Required: Mark Using the primary apportioned overheads in Table 2, and any relevant information from the question including Table 1. perform a secondary overhead 5.3 apportionment of service departmental overheads to production departments 10 using c) appropriate basis of apportionment and applicable method(s) of apportioning Service departmental overheads to production departments Calculate the predetermined overhead rates to be used in each of the three production departments 56 Determine the sales value of the 1000 suits ordered Assuming that for the year ended 28 February 2019 the actual manufacturing overheads for the sewing department were N$110 000, actual machine hours were 14 000 hours and actual direct labour hours were 9 000 hours, calculate the over under absorption of manufacturing overheads in the sewing departments Page 21 of 27 5.8 Explain how under/over recoveries of overheads arise and why pre-determined overhead rates are used. 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