Question

Azu Company Limited is divided into four (4) cost centers.

That is A, B, as production departments and Human Resource & Repairs as service departments The actual cost of a period is as follows

                                                A                     B                     HR           Repairs

                                                GHS                 GHS                 GHS           GHS

Indirect materials                   35                     150                  -                       25

Maintenance wages               160                   250                  300                  325

Other overheads as follows:

                                                                        GHS

Supervision                                                     1500

Power                                                              1800

Rent                                                                300

Repairs of plants                                             1200

Depreciation of plants                                     850

Depreciation of building                                   720

The following information is available in respect of the departments:

                                                            A                     B                     HR            Repairs

Area occupied in square feet              1500              1100                900                  500

Number of employees                               20              15                    10                    5

Value of plant £                                  6000               4500                3000                1500

HZ Power                                              10000               9000             6000                5000

Required

1. Prepare an overhead analysis sheet by the most reasonable approach and estimate the overhead cost incurred in each cost center                                      (6marks)

2. Department A & B are production departments whereas HR & Repairs are there to service these production departments. Assume these two service departments do not render any service to each other. Using equitable and fair as appropriate as possible re-apportion the HR & Repairs overheads to the production departments (4marks)                                                                                         

Answer 1

	I
		Over Head	GHS	Allocation Basis	Ratio	A	B	HR	Repairs
		Indirect Materials				35	150	0	25
		Maintenance wages				160	250	300	325
		Supervision	1500	Number of employees	4:3:2:1	600	450	300	150
		Power	1800	HZ Power	10:9:6:5	600	540	360	300
		Rent	300	Area	15:11:9:5	112.5	82.5	67.5	37.5
		Repairs of plants	1200	Value of plant	4:3:2:1	480	360	240	120
		Depreciation of plants	850	Value of plant	4:3:2:1	340	255	170	85
		Depreciation of Buildings	720	Value of plant	4:3:2:1	288	216	144	72
						2616	2304	1582	1115
	II					GHS
			A	B	HR	Repairs
		Already Apportioned	2616	2304	1582
		Re Apportion	904	678	-1582
		(Number of employees(4:3))
			3520	2982	0
		Re Apportion	637	478		-1115
		(Value of plant(4:3))
			4157	3460	0