U Win Bo Myint Cost and Management CPA

Overhead Homework - 2
Question – 1
The following production and total cost information relates to a single product organization for the last three months:
Month Production Total cost
Units $
1 1,200 66,600
2 900 58,200
3 1,400 68,200
The variable cost per unit is constant up to a production level of 2,000 units per month but a step up of $6,000 in the
monthly total fixed cost occurs when production reaches 1,100 units per month.
What is the total cost for a month when 1,000 units are produced?

Question – 2
A finishing department absorbs production overheads using a direct labour hour basis.
Budgeted production overheads for the year just ended were $268,800 for the department, and actual production
overhead costs were $245,600.
If actual labour hours worked were 45,000 and production overheads were overabsorbed by $6,400, what
was the overhead absorption rate per labour hour?

Question – 3
The following budgeted and actual results relate to production activity and overhead costs in WX
Production overhead costs Budget Actual
Fixed $36,000 $39,000
Variable $9,000 $12,000
Direct labour hours worked 18,000 hours 20,000 hours
An absorption costing system is used and production overhead costs are absorbed into output costs on a direct
labour hour basis.
What is the total production overhead (both fixed and variable) during the period?

Question – 4
A cost centre has an overhead absorption rate of $4.25 per machine hour, based on a budgeted activity level of
12,400 machine hours.
In the period covered by the budget, actual machine hours worked were 2% more than the budgeted hours and the
actual overhead expenditure incurred in the cost centre was $56,389.
What was the total over or under absorption of overheads in the cost centre for the period?

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U Win Bo Myint Cost and Management CPA

Question – 5
A company makes two products, Product X and Product Y. Each product is processed through two cost centres, CC1
and CC2. The following budgeted data is available.
CC1 CC2
Allocated and apportioned overheads $126,000 $180,000
(All overheads are fixed costs.)
Direct labour hours per unit
Product X 1.5 2.0
Product Y 1.2 2.6

The budgeted production is 12,000 units of Product X and 10,000 units of Product Y. Fixed overheads are absorbed
into costs on a direct labour hour basis.
Required
Calculate the budgeted total fixed overhead cost per unit for Product X and for Product Y.

Question – 6
A production centre has three production departments, A, B and C.
Budgeted production overhead costs for the next period are as follows:
$
Factory rent 60,000
Equipment depreciation 80,000
Insurance 20,000
Heating and lighting 18,000
Indirect materials:
Department A 7,000
Department B 6,600
Department C 9,400
Indirect labour:
Department A 40,000
Department B 27,000
Department C 20,000

Insurance costs relate mainly to health and safety insurance, and will be apportioned on the basis of the number of
employees in each department. Heating and lighting costs will be apportioned on the basis of volume.
Other relevant information is as follows:
Total Department A Department B Department C
Direct labour hours 18,000 8,000 6,000 4,000
Number of employees 50 20 16 14
Floor area (square metres) 1,200 300 400 500
Cost of equipment 1,000 200 600 200
($ 000s)
Volume (cubic metres) 18,000 8,000 6,000 4,000

Required
(a) Calculate the overhead costs for each production department
(b) Calculate an overhead absorption rate for the period for each department, assuming that a separate direct
labour hour absorption rate is used for each department.
(c) Calculate an overhead absorption rate for the period, assuming that a single factory-wide direct labour hour
absorption rate is used.
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U Win Bo Myint Cost and Management CPA

Question – 7
In a factory with four production departments and two service departments, the operating costs for the month of
October were as shown below.
$
Production Department 1 700,000
Production Department 2 300,000
Production Department 3 400,000
Service departments
Canteen 78,000
Boiler house 100,000
1,578,000
The costs of running the canteen are apportioned to each department on the basis of the estimated use of the
canteen by employees in each department.
The costs of the boiler house are apportioned on the basis of the estimated consumption of power by each
department.
The service departments’ costs are therefore apportioned as follows:
Canteen Boiler house
% %
Production Department 1 40 30
Production Department 2 20 30
Production Department 3 30 20
Service departments
Canteen - 20
Boiler house 10 -

Required
Prepare a statement showing the allocation of costs to the production departments using:
(a) The repeated distribution method
(b) The simultaneous equations method.