Tornado plc has estimated that the factory indirect costs for the next financial year will be as follows:

$

Indirect Wages $740600$

Repairs and Maintenance $112500$

Canteen $54500$

Insurance on Premises $40000$

Insurance on Machines $36000$

Heat and Light $22400$

Sundries $6000$

The company wishes to calculate a suitable overhead absorption rate $($OAR$)$ for each of its two production departments. The following information is available:

Production Departments Service Departments

Machining Assembly Repairs Canteen Broiler House

Machine Cost $($$$)450000140000--210000$

Machine Hours $40000035000--15000$

Direct Labour Hours $90000240000---$

Floor Area $($M$2)69002700900900600$

Number of Employees $5090302010$

Sundries $($$$)30052465195210125$

Proportion of work done by each service department:

Machining Assembly Repairs Canteen Broiler House

Repairs $(\%)6030--10$

Canteen $(\%)305015-5$

Broiler House $(\%)9010---$

Actual results were as follows:

Machining Assembly

Indirect Cost $($$$)533100434000$

Machine Hours $390000345000$

Direct Labour Hours $96000245000$

Required:

a$)$ Calculate an appropriate OAR for each production department, stating and using suitable bases for apportioning the factory indirect costs $[18$ marks$]$

b$)$ Calculate the amount of overhead that would be over or under absorbed by each department. $[6$ marks$]$

c$)$ Explain the significance of the results you have calculated in part $($b$)[6$ marks$]$