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urgent The main distributer of natural juices uses two processes for its production process. The fruit juices pass through a distillery and a canning department.
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The main distributer of natural juices uses two processes for its production process. The fruit juices pass through a distillery and a canning department. Both departments incur overheads; however, management wants to assess the total overheads absorbed in each department. The information below relates to the budgeted overheads for each department prepared by the cost controller: Cost Machining Production set-up costs Material handling cost Inspection Machine hours Direct labour hours Distillery Canning $4,000,000 $12,000,000 $16,000,000 $12,000,000 $14,000,000 $4,000,000 $6,000,000 $4,000,000 800.000 4,000,000 20,000,000 2,000,000 For the period ended 30 June 2020 the actual overheads incurred amounted to $100,000,000 of which 60% relates to distillery and the remainder to canning. The production manager also provided data for the period which indicates that total direct labour hours are 20% more than expected. Meanwhile machine hours are 200,000 and 1,400,000 more than planned for distillery and canning respectively. The budgeted direct wages were the same as planned. For the period ended 30 June 2020 the actual overheads incurred amounted to $100,000,000 of which 60% relate distillery and the remainder to canning. The production manager also provided data for the period which indicates total direct labour hours are 20% more than expected. Meanwhile machine hours are 200,000 and 1,400,000 more planned for distillery and canning respectively. The budgeted direct wages were the same as planned. Required: (a) Outline the two main factors that may result in an under/over absorption of overheads at the entity. (4 marks) (b) Calculate the overhead absorption rates for both departments. (6 marks) (c) Calculate the under/over absorption of overheads for each department. (6 marks) (d) Distinguish between overhead 'apportionment and allocation (4 marks) Step by Step Solution
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