You are employed as an accounting technician with Total Recall Ltd (TRL), a company that
manufactures computer memory sticks. Its customers are mainly large computer and electronics
retailers.
Data
TRL has two production departments involved in producing memory sticks:
 Electronics Assembly
 Plastics Assembly
It also has two service departments that support the production departments:
 Stores
 Equipment Maintenance
The budgeted overheads relating to these departments for the next period are shown below, together
with their behaviour and how they are apportioned to departments.
Budgeted cost
Cost behaviour
£
Comments
Heat and lighting
Semi-variable
(25% fixed
75% variable)
134,400
Apportion fixed element equally between all
four departments. Apportion variable element
according to floor area.
Power for machinery
Variable
120,400
Apportion 60% to Electronics Assembly, and
40% to Plastics Assembly.
Supervision
Fixed
36,700
£26,016 relates to the Electronics Assembly
department and the remainder to the Plastics
Assembly department.
Stores wages
Fixed
45,800
Equipment Maintenance
wages
Fixed
64,200
Depreciation of fixed assets
Fixed
204,000
Apportion according to net book value of
fixed assets.
Other overhead costs
Dependant on
specific cost
108,000
Apportion 30% to each production
department and 20% to each service
department
The following information is also available:
Square metres
occupied
Net book value
of fixed assets
£
Number of
material
requisitions
420,000
Hours spent on
equipment
maintenance
((((hours)
4,260
100,000
Plastics Assembly
60,000
280,000
2,130
25,171
Stores
20,000
40,000
710
Equipment Maintenance
20,000
60,000
Department
Electronics Assembly
28,848
Task 1.4 (22 minutes)
Use the following table to allocate or apportion the overheads between the production
departments, using the most appropriate basis. Round to the nearest £ throughout.
Notes:


The Equipment Maintenance department’s total costs should be apportioned on the basis of
the hours spent on equipment maintenance for the other three departments.
The total of the Stores department’s costs should then be apportioned according to the
number of material requisitions.
Overhead
Heat and lighting
fixed cost
Heat and lighting
variable cost
Power for
machinery
Supervision
Stores
wages
Equipment
Maintenance
wages
Depreciation of
fixed assets
Other overhead
costs
Total of primary
apportionments
Reapportion
Equipment
Maintenance
Reapportion
Stores
Total production
department
overheads
Basis of
allocation
Electronics
Assembly
Plastics
Assembly
Stores
Equipment
Maintenance
Total
£
£
£
£
£
Data
Both the Electronics Assembly and Plastics Assembly departments are highly automated and
machine intensive.
The following information relates to these two departments for the next period:
Electronics Assembly
department
Plastics Assembly
department
14,200
12,500
9,400
8,800
Budgeted machine hours
Budgeted direct labour hours
Total
26,700
13,350
18,200
Task 1.5 (8 minutes)
Using the above information and your calculations from task 1.4, calculate the budgeted
overhead recovery (absorption) rate, using the most appropriate basis (and rounding your
answer to the nearest whole £) for:
(a)
the Electronics Assembly department
(b)
the Plastics Assembly department
Data
During the same period the Plastics Assembly department actually worked 13,250 machine hours,
and 9,300 labour hours. This incurred an overhead cost of £300,750.
Task 1.6 (14 minutes)
(a)
Using the information above and your answers from task 1.5, calculate the actual
overhead absorbed in the period (to the nearest whole £).
(b)
Calculate the under or over absorbed overheads for the period (to the nearest whole £).
Clearly state whether the overheads were under or over absorbed.
(c)
Identify TWO factors that could have caused the under or over absorption in (b).