Question

Question 1

AKWASI produces a specialized product CESAR. The product passes through three (3) cost centers namely: machining, assembly and painting shop. Data relating to the cost centers is as below:

	Machinin g	Assembly	Painting shop	Engineering shop	Stores
Number of employees	81	51	39	30	24
Engineering shop-- service	18,000	12,000	10,000	-	-
Stores (orders)	180	135	90	45	-

At a management meeting dated 24^th September 20X0, the following overheads were budgeted for the production and service cost centers exclusively for the ensuing period:

Cost centers	GHS 000
Machining	180,000
Assembly	160,000
Painting shop	130,000
Engineering shop	84,000
Stores	52,000
Canteen	75,000

Equally, the following budgeted data relates to the production cost centers:

	Machining	Assembly	Painting shop
Machine hours	9,200	8,100	6,600
Labor hours	8,300	11,250	9,000
Labor cost (GHS)	40,000	88,000	45,000

Actual results for the production cost centers were:

	Machining	Assembly	Painting shop
Machine hours	10,000	8,200	6,600
Labor hours	4,500	7,800	6,900
Labor cost (GHS)	25,000	42,000	35,000
Actual overheads (GHS)	290,000	167,000	155,000

Required:  

1. Apportion the production overhead costs of the service cost centers to the production   cost centers and determine predetermined overhead absorption rates for the three (3) production cost centers on the following basis:

Machining - Machine hours.  

Assembly - Labor hours.  

Paint shop - Labor costs.                                                             

2. Prepare a statement showing the under/over absorption per cost center for the period

under review.                                                                                

PLEASE SHOW WORKING!!!......

Answer 1

Cost Centers		Hours/Cost	predetermined overhead absorption rates
Machining	180,000.00	9,200.00	19.57
Assembly	160,000.00	11,250.00	14.22
Painting Shop	130,000.00	45,000.00	2.89

Cost Centers	Actual Hours/Cost	predetermined overhead absorption rates	Applied	Actual Results	Amount
Machining	10,000.00	19.57	195,700.00	290000	94,300.00	UnderApplied
Assembly	7,800.00	14.22	110,916.00	167000	56,084.00	UnderApplied
Painting Shop	35,000.00	2.89	101,150.00	155000	53,850.00	UnderApplied