Reapportionment of service department overheads and a calculation of under/over-recovery of overheads. An organization has budgeted for the following production overheads for its production and service cost centres for the coming year: Cost centre R Machining 180 000, Assembly 160 000 Paint shop 130 000 Engineering shop 84 000 Stores 52 000 Canteen 75 000 The product passes through the machining, assembly and paint shop cost centres and the following data relates to the cost centres: Paint Eng Stores shop shop No. of employees 81 51 39 30 24 Eng Shop-service 18 000 12 000 10 000 Stores (orders) 180 135 90 45 1 The following budgeted data relates to the production cost centres: M/c Assembly Paint shop M/c hours 9 200 8 100 6 600 Lab hours 8 300 11 250 9 000 Lab cost R40 000 R88 000 R45 000 Required: (a) Apportion the production overhead costs of the service cost centres to the production cost centres and determine predetermined overhead absorption rates for the 3 production cost centres on the following basis: Machining - Machine hours. Assembly - Labour hours. Paint shop - Labour costs. (b) Actual results for the production cost centres were: M/c Assembly Paint shop M/c hours 10 000 8 200 6 600 Lab hours 4 500 7 800 6 900 Lab cost R25 000 R42 000 R35 000 Actual O/h R290 000 R167 000 R155 000 Prepare a statement showing the under/over absorption per cost centre for the period under review. (c) Explain why overheads need to be absorbed upon pre-determined bases such as the above. Consider whether these bases for absorption are appropriate in the light of changing technology, suggesting any alternative basis that you consider appropriate. Adapted from AAT Cost Accounting and Budgeting