Lecture - OH reciprocal method (1)

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A factory producing several lines of ladies clothing has three production departments, P1, P2
and P3 and three service departments, S1, S2 and S3. For the year to 30 June, cost centre
expenses and other relevant information are budgeted as follows:
Total P1
(RM) (RM)
‘000 ‘000
Indirect wages
155
18
Consumable materials 48
8
Plant depreciation
65
22
Power
27
Heat and light
13
Rent and rates
15
Building insurance
8
Floor area (sq. m)
32
6
Estimated power
usage (%)
100
20
Direct labor (hours) 150
7
Machine usage (hours)120
4
Value of raw material
issues (%)
110
64
P2
P3
S1
S2
S3
(RM) (RM) (RM) (RM) (RM)
‘000 ‘000 ‘000 ‘000 ‘000
30
42
12
20
33
12
18
7
3
18
16
9
-
8
10
2
3
3
26
47
40
30
56
46
10
10
20
6
10
8
30
12
12
10
12
S1 overheads are to be apportioned to production departments based on the value of raw
material issues. S2 and S3 overheads are to be apportioned to production departments
according to direct labor hours and machine hours respectively.
Prepare an overhead analysis sheet in columnar form using the reciprocal
method, calculating the overhead absorption rates for each machine hour and
each direct labor hour for each of the three production units. You should use bases of
apportionment and absorption which you consider most appropriate, and the bases
used should be clearly indicated in your statement.
Answer
Indirect wages
Consumable materials
Plant depreciation
Power
Heat and light
Rent and rates
Building insurance
Reapportionment:
S3
Total
(RM)
‘000
155
48
65
27
13
15
8
331.0
331.0
331.0
S2
S1
331.0
S3
331.0
S2
(7:57:56)
S1 (4:40:46)
331.0
Overhead analysis sheet
P1
P2
P3
S1
(RM) (RM)
(RM)
(RM)
‘000
‘000
‘000
‘000
18
30
42
12
8
12
18
22
18
16
9
5.4
7.02
2.45
3.25
S2
S3
(RM) (RM)
‘000
‘000
20
33
7
3
-
8.1
2.7
1.62
2.16
4.06
0.80
1.22
1.22
2.81
1.5
3.75
2.0
4.68
2.5
0.94
0.5
1.41
0.75
1.41
0.75
60.16
76.02
95.34
25.95
32.0
41.54
1.39
13.85 15.92
6.92
3.46 (41.54)
61.55
89.87 111.26 32.87 35.46
0
1.65
11.1
18.05
2.36 (35.46)_ 7.09
63.21 100.98 124.5
35.23
0
7.09
20.50
3.84
3.84 (35.23) 3.20 3.84
83.70 104.82 128.34
0
3.21 10.93
0.36
3.64
4.19
1.82
0.91(10.93)
84.06 108.46 132.53
1.82
4.12
0
0.11
0.86
0.85 (1.82)
0.18
84.35
1.84
111.16
2.11
135.49
0
(4.13)
0______ 0_
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