Question

ZABZUGU TATALE produces a specialized product KANZO. 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 24th 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: a. 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. Ibrahim Anyass Ahmed 4 of 5 Paint shop - Labor costs. b. Prepare a statement showing the under/over absorption per cost center for the period under review.

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