A company has three production departments A, B, and C and one service department D. Planned...

A company has three production departments A, B, and C and one service department D. Planned overhead costs for the quarter are as follows:

Overheads	£	Absorption basis
Quality Control	3000	Direct Labour Hours
Depreciation	3750	Machine value
Insurance	1250	Machine value
Rates and Rent	7500	Floor area
Utility bills	625	Floor area

The following information is available for each department:

Absorption basis	A	B	C	D
Machine Value (£)	5000	2500	3500	1500
Budgeted Direct Labour hours	1000	500	1500	1000
Floor Area Occupied (Square metres)	1500	400	500	100

Of the total overhead costs allocated to service department D, 25% is charged to A; 30% to B; and the remainder is charged to C.

Required:

Prepare an overhead analysis sheet showing the total overhead cost budgeted for all four departments. You must show all your workings clearly.

Allocate the services department D costs to all production departments.

(Total 40 marks)

Expert Solution

					Amount $
a.)	Overheads	A	B	C	D	Total
	Quality Control	750	375	1,125	750	3,000
	Depreciation	1,500	750	1,050	450	3,750
	Insurance	500	250	350	150	1,250
	Rates and Rent	4,500	1,200	1,500	300	7,500
	Utility bills	375	100	125	25	625
	Total	7,625	2,675	4,150	1,675

	Working
	Overheads	A	B	C	D
	Quality Control	=3000*1000/4000	=3000*500/4000	=3000*1500/4000	=3000*1000/4000
	Depreciation	=3750*5000/12500	=3750*2500/12500	=3750*3500/12500	=3750*1500/12500
	Insurance	=1250*5000/12500	=1250*2500/12500	=1250*3500/12500	=1250*1500/12500
	Rates and Rent	=7500*1500/2500	=7500*400/2500	=7500*500/2500	=7500*100/2500
	Utility bills	=625*1500/2500	=625*400/2500	=625*500/2500	=625*100/2500
	Total	7,625	2,675	4,150	1,675



b.)	Service Department D	Allocation
		Amount $
	A	419	(1,675 x 25% )
	B	502	(1,675 x 30% )
	C	754	(1,675 x 45% )
	Total	1,675

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