Question Four

1. a)Define blanket overhead rates and discuss their use in management accounting. You should also consider the limitations of blanket overhead rates in your discussion.
2. (5 marks)
3. b)Examine the purpose of departmental overhead rates and consider the advantages of departmental overhead rates compared to blanket overhead rates.
4. (5 marks)

The manufacturing overheads for Pakistani Perfect Produce Plc, located in Lahore, for

the year ending 30thApril 2021

Rent, rates, heat, light Depreciation of machinery Supervisory salaries

Total

PKR is the currency symbol for and the following details apply:

are as follows:

PKR

3,000,000 1,100,000 1,250,000 5,350,000

the Pakistani Rupee. Two products are manufactured,

Selling price per unit

Direct material cost per unit Direct labour hours per unit Total units produced and sold

Purple

PKR 175 PKR 50 2.5 hours 225,000 units

White

PKR 187.50 PKR 60

2 hours

130,000 units

Labour charge per hour is PKR 22.50.

Required (cont.):

c) Calculate the profit per unit for each product. Use blanket rates to allocate the overheads, with direct labour hours, as a basis for allocation.(10 marks)

Further details apply, in respect of the two production departments A and B; and the service department C:

Number of employees Value of fixed assets

Dept. A

40,000 PKR 2,000,000

Dept. B

50,000 PKR 1,600,000

Dept. C

35,000 PKR 800,000

Total

125,000 PKR 4,400,000

May 2021

Introduction to Management Accounting ACCO1084

(Question d is on the next page. Please turn page over.)

Page 5 of 7

Approved

Required

d) Show numerically and explain how you would apportion thesupervisory salariesto the individual departments if you were to use departmental overhead rates rather than blanket rates(you don't need to calculate departmental rates -just show and explain the apportionment step in the process). Clearly show your considerations and workings.

May 2021

Introduction to Management Accounting ACCO1084

Page 6 of 7

(5 marks) Total 25 marks