Question

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 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.                                                                                

TOTAL MARKS

Answer 1

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