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Question 1 ZABZUGU TATALE produces a specialized product KANZO. The product passes through three (3) cost...

Question 1

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:  

  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.                                                             

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

under review.                                                                                

TOTAL MARKS

Solutions

Expert Solution

a.) Cost Centers Amount $-A Hours/Cost-B Predetermined overhead absorption rates ( A/B ) $
Machining       180,000              9,200                                    19.57
Assembly       160,000            11,250                                    14.22
Painting Shop       130,000            45,000                                      2.89
b.) Cost Centers Actual Hours/Cost-A Predetermined overhead absorption rates-B Applied (A x B )=C Actual Results$ =D Amount $ (D-C )
Machining                         10,000                            19.57                  195,700               290,000                 94,300 Under absorption
Assembly                           7,800                            14.22                  110,916               167,000                 56,084 Under absorption
Painting Shop                         35,000                              2.89                  101,150                     155,000                 53,850 Under absorption

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