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Category > Accounting Posted 26 Sep 2017 My Price 10.00

Bookdon Public Limited Company

Bookdon Public Limited Company manufactures three products in two production departments, a machine shop and a fitting section; it also has two service departments, a canteen and a machine maintenance section. Shown below are next year's budgeted production data and manufacturing costs for the company.

	Product	Product	Product
	X	Y	Z
Production	4200 units	6900 units	1700 units
Prime cost:
Direct materials	£11 per unit	£14 per unit	£17 per unit
Direct labour:
Machine shop	£6 per unit	£4 per unit	£2 per unit
Fitting section	£12 per unit	£3 per unit	£21 per unit
Machine hours per unit	6 hours per unit	3 hours per unit	4 hours per unit

				Machine
	Machine	Fitting		Maintenance
	shop	section	Canteen	Section	Total
Budgeted overheads (£):
Allocated overheads	27660	19470	16600	26650	90380
Rent, rates, heat and light					17000
Depreciation and insurance of equipment					25000
Additional data:
Gross book value of equipment (£)	150000	75000	30000	45000
Number of employees	18	14	4	4
Floor space occupied (square metres)	3600	1400	1000	800

It has been estimated that approximately 70% of the machine maintenance section's costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.

Required:

(a) (i) Calculate the following budgeted overhead absorption rates:

A machine hour rate for the machine shop.

A rate expressed as a percentage of direct wages for the fitting section.

All workings and assumptions should be clearly shown.

(ii) Calculate the budgeted manufacturing overhead cost per unit of product X.

(b) The production director of Bookdon PLC has suggested that 'as the actual over-heads incurred and units produced are usually different from the budgeted and as a consequence profits of each month end are distorted by over/under absorbed overheads, it would be more accurate to calculate the actual overhead cost per unit each month end by dividing the total number of all units actually produced during the month into the actual overheads incurred.'

Critically examine the production director's suggestion.

Answers

Maurice Tutor

(5)

Status NEW Posted 26 Sep 2017 10:09 PM My Price 10.00

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