Chapter 21 Job Costing

QUESTION 1
The following data relate to Job No. QQ23 during a period:
Opening work-in-progress $32,720
Direct materials added $80,000
Direct labour $14,000
Direct labour hours 600 hours
Budgeted total manufacturing overheads $123,000
Budgeted total direct labour hours 41,000 hours

Manufacturing overheads were absorbed on the basis of direct labour hours.

Required:
(a) Determine the selling price of Job No. QQ23, assuming a mark-up of 40% is required. (5 marks)
(b) What is a job costing system? (2 marks)

Answer
(a)
$
Opening work-in-progress 32,720 0.5

Direct materials 80,000 0.5

Direct labour 14,000 0.5

Manufacturing overheads (Workings) 1,800 2

Total manufacturing costs 128,520

Add Mark-up ($128,520  40%) 51,408 1

Selling price 179,928 0.5

Workings:
Manufacturing overhead absorption rate
= $123,000  41,000
= $3 per direct labour hour (1 mark)

Manufacturing overheads absorbed = 600  $3 = $1,800 (1 mark)

(b) A job costing system is a costing system that accounts for the costs associated with a particular job.
The three main elements of manufacturing costs are direct materials, direct labour and manufacturing
overheads. (2 marks)

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QUESTION 2
Winter Ltd calculates its predetermined overhead absorption rate annually on the basis of machine hours. For
the year ended 31 December 2012, the total budgeted manufacturing overheads were $345,000 and the total
budgeted machine hours were 25,000 hours. Total actual manufacturing overheads and machine hours for the
year were $356,000 and 26,000 hours, respectively.

Required:
(a) Calculate the predetermined overhead absorption rate for the year ended 31 December 2012. (2 marks)
(b) Determine the under- /over-absorbed manufacturing overheads for the year ended 31 December 2012.
(3 marks)

Answer
(a) Predetermined overhead absorption rate
= Total budgeted manufacturing overheads  Total budgeted machine hours
= $345,000  25,000 hours
= $13.8 per machine hour (2 marks)

(b) Actual manufacturing overheads absorbed

= Actual machine hours  Predetermined overhead absorption rate
= 26,000  $13.8
= $358,800 (1 mark)

The amount of over-absorbed manufacturing overheads is calculated as follows:

$
Actual manufacturing overheads absorbed 358,800 0.5

Less Manufacturing overheads incurred (356,000) 0.5

Manufacturing overheads over-absorbed 2,800 1

QUESTION 3
Autumn Ltd produces three products: A, B and C. Information on each of the products for the current year is
as follows:
Product A Product B Product C
Costs per unit:
Direct materials $80 $120 $50
Direct labour ($28 per hour) $336 $840 $700
Machine hours per unit 5 hours 10 hours 12 hours
Budgeted production 10,000 units 40,000 units 24,000 units

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Total budgeted manufacturing overheads for the year amount to $988,000. Selling prices are determined
based on product costs, plus a mark-up of 20%.
Required:
(a) Calculate the predetermined overhead absorption rate based on:
(i) Direct materials cost (as a percentage) (3 marks)
(ii) Direct labour hours (3 marks)
(iii) Machine hours (3 marks)
(iv) Production units (3 marks)
(b) Distinguish between actual costing and normal costing. (4 marks)
(c) Explain why under-absorption of manufacturing overheads may occur under normal costing. (2 marks)
(Calculations to two decimal places)

Answer
(a) (i) Direct materials cost:
$
Product A (10,000  $80) 800,000 0.5

Product B (40,000  $120) 4,800,000 0.5

Product C (24,000  $50) 1,200,000 0.5

6,800,000 0.5

Predetermined overheads absorption rate

= (Total budgeted manufacturing overheads  Total budgeted direct materials cost)  100%
= ($988,000  $6,800,000)  100%
= 14.53% of direct materials cost (1 mark)

(ii) Direct labour hours:

Direct
labour hours
Product A [10,000  ($336  $28)] 120,000 0.5

Product B [40,000  ($840  $28)] 1,200,000 0.5

Product C [24,000  ($700  $28)] 600,000 0.5

1,920,000 0.5

Predetermined overheads absorption rate

= Total budgeted manufacturing overheads  Total budgeted direct labour hours
= $988,000  1,920,000
= $0.51 per direct labour hour (1 mark)

(iii) Machine hours:

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 Machine
hours
Product A (10,000  5) 50,000 0.5

Product B (40,000  10) 400,000 0.5

Product C (24,000  12) 288,000 0.5

738,000 0.5

Predetermined overhead absorption rate

= Total budgeted manufacturing overheads  Total budgeted machine hours
= $988,000  738,000
= $1.34 per machine hour (1 mark)

(iv) Production units:

Units
Product A 10,000 0.5

Product B 40,000 0.5

Product C 24,000 0.5

74,000 0.5

Predetermined overhead absorption rate

= Total budgeted manufacturing overheads  Total budgeted production units
= $988,000  74,000
= $13.35 per unit (1 mark)

(b) Under actual costing, both direct and indirect costs are accounted for on the basis of actual costs
incurred. The absorption of indirect costs (manufacturing overheads) is calculated by multiplying the
actual overhead absorption rate with the actual quantity of the absorption base. (2 marks)

Under normal costing, only direct costs are accounted for on the basis of actual costs incurred. The
absorption of indirect costs is calculated by multiplying the predetermined overhead absorption rate
with the actual quantity of the absorption base. (2 marks)

(c) This is because the actual manufacturing overheads incurred in a period may exceed the budgeted
manufacturing overheads. Alternatively, the actual quantity of the absorption base (e.g., direct labour
hours or machine hours) may be lower than the budgeted level. If either of these happens, the amount
of manufacturing overheads absorbed in a period will be smaller than the actual amount of
manufacturing overheads incurred during that period. (2 marks)

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QUESTION 4
Larry Manufacturing Ltd has two manufacturing departments and three service departments. Information for
the month ended 31 March 2012 is as follows:
Manufacturing department Service department
1 2 A B C
$ $ $ $ $
Allocated and apportioned overheads 432,575 676,390 341,220 165,165 75,504
Number of employees 600 720 50 60 110
Floor area occupied (sq. m.) 3,200 16,000 3,000 800 1,200
Machine hours 11,000 110,000
The company uses the direct method to re-apportion the overheads of the service departments on the
following bases:
Service department A Floor area occupied
Service department B Machine hours
Service department C Number of employees

Required:
(a) Re-apportion the overheads of the service departments to the manufacturing departments using the
direct method. (7 marks)
(b) Distinguish between the absorption of overheads and the apportionment of overheads. (2 marks)
(Calculations to the nearest dollar)

Answer
(a) Re-apportionment of service departments’ overheads:

Manufacturing department Service department

1 2 A B C
$ $ $ $ $
Allocated and apportioned
overheads 432,575 676,390 341,220 165,165 75,504
Service department A (W1) 56,870 284,350 (341,220) — — 2

Service department B (W2) 15,015 150,150 — (165,165) — 2

Service department C (W3) 34,320 41,184 — — (75,504) 2

538,780 1,152,074 — — — 1

Workings:
(W1) Re-apportionment of service department A’s overheads:
Manufacturing department 1: $341,220  (3,200  19,200) = $56,870 (1 mark)

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 Manufacturing department 2: $341,220  (16,000  19,200) = $284,350 (1 mark)

(W2) Re-apportionment of service department B’s overheads:

Manufacturing department 1: $165,165  (11,000  121,000) = $15,015 (1 mark)
Manufacturing department 2: $165,165  (110,000  121,000) = $150,150 (1 mark)

(W3) Re-apportionment of service department C’s overheads:

Manufacturing department 1: $75,504  (600  1,320) = $34,320 (1 mark)
Manufacturing department 2: $75,504  (720  1,320) = $41,184 (1 mark)

(b) The process of arriving at the amount of overheads per cost object (i.e., job) or cost unit is known as
the absorption of overheads. (1 mark)

The process of splitting overheads among departments (or cost centres) is known as the apportionment
of overheads. (1 mark)
QUESTION 5
Spring Ltd is an office appliance manufacturer which produces two products, A and B. Information on the
two products for the current year is as follows:
Product A Product B
Unit costs:
Direct materials $10 $15
Direct labour ($5 per hour) $20 $30
Machine hours per unit 5 hours 8 hours
Budgeted production 300,000 units 400,000 units

Total budgeted factory overheads for the current year are $18,000,000.

Required:
(a) Calculate the predetermined overhead absorption rates based on:
(i) Direct materials cost (number of times) (2.5 marks)
(ii) Direct labour hours (2.5 marks)
(iii) Machine hours (2.5 marks)
(b) Using the answer obtained in (a), calculate three different selling prices for each product. The company
uses cost-plus pricing to determine the selling price, with a mark-up of 30%. (12 marks)
(Calculations to two decimal places)

Answer
(a) Predetermined overhead absorption rates:
(i) Based on direct materials cost:
$

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 Product A (300,000  $10) 3,000,000 0.5

Product B (400,000  $15) 6,000,000 0.5

9,000,000 0.5

Predetermined overhead absorption rate = $18,000,000  $9,000,000

= 2 times of direct materials cost (1 mark)

(ii) Based on direct labour hours:

Direct labour hours
Product A [300,000  ($20  $5)] 1,200,000 0.5

Product B [400,000  ($30  $5)] 2,400,000 0.5

3,600,000 0.5

Predetermined overhead absorption rate = $18,000,000  3,600,000

= $5 per direct labour hour (1 mark)

(iii) Based on machine hours:

Machine hours
Product A (300,000  5) 1,500,000 0.5

Product B (400,000  8) 3,200,000 0.5

4,700,000 0.5

Predetermined overhead absorption rate = $18,000,000  4,700,000

= $3.83 per machine hour (1 mark)

(b) Product A’s selling prices:

Based on Based on Based on
direct materials cost direct labour hours machine hours
Per unit: $ $ $
Direct materials 10 10 10 0.75

Direct labour 20 20 20 0.75

Factory overheads 20 20 19.15 1.5

Product costs 50 50 49.15

Mark-up (30%) 15 15 14.75 1.5

Selling price 65 65 63.90 1.5

Product B’s selling prices:

Based on Based on Based on
direct material cost direct labour hours machine hours
Per unit: $ $ $
Direct materials 15 15 15 0.75

Direct labour 30 30 30 0.75

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 Factory overheads 30 30 30.64 1.5

Product costs 75 75 75.64

Mark-up (30%) 22.5 22.5 22.69 1.5

Selling price 97.5 97.5 98.33 1.5

QUESTION 6
A company has two manufacturing departments: machining and assembly. A maintenance department is
established to serve the manufacturing departments. The machining department is the largest department in
the company in terms of floor area occupied, using two-thirds of the total floor area. The assembly
department and the maintenance department share the rest of the floor area equally.

Production overheads are absorbed by the two manufacturing cost centres on the following bases using pre-
determined rates:
Machining department Machine hours
Assembly department Direct labour hours

Budgeted cost information of the departments for June 2013:

Activity level Production overheads
Machining department (machine hours) 30,000 hours $346,000
Assembly department (direct labour hours) 50,000 hours $521,000
Maintenance department $400,000

Actual cost information of the departments for June 2013:

Activity level Production overheads
Machining department (machine hours) 25,000 hours $300,000
Assembly department (direct labour hours) 52,000 hours $510,000
Maintenance department $400,000
The service department’s production overheads are to be re-apportioned to the manufacturing departments
based on the floor area occupied, using the direct method.

Required:
Calculate for each of the manufacturing departments:
(a) Predetermined overhead absorption rate (7 marks)
(b) Production overheads absorbed (2 marks)
(c) Over- or under-absorption of production overheads (5 marks)

Answer
(a) Re-apportionment of the maintenance department’s budgeted production overheads:

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 Machining Assembly Maintenance
department department department
$ $ $
Budgeted production overheads 346,000 521,000 400,000 1

Re-apportionment (Workings) 320,000 80,000 (400,000) 3

666,000 601,000 — 1

Workings: Floor area occupied: Machining department = 2/3 = 4/6

Assembly department = 1/3  1/2 = 1/6

Re-apportionment ratio = 4 (machining department) : 1 (assembly department)

Machining department’s share = $400,000  4/5 = $320,000 (1.5 marks)
Assembly department’s share = $400,000  1/5 = $80,000 (1.5 marks)

Predetermined overhead absorption rates:

Machining department = Total budgeted production overheads  Total budgeted machine hours
= $666,000  30,000
= $22.2 per machine hour (1 mark)

Assembly department = Total budgeted production overheads  Total budgeted direct labour hours
= $601,000  50,000
= $12.02 per direct labour hour (1 mark)

(b) Overheads absorbed:

Machining department = Actual machine hours  Predetermined overhead absorption rate
= 25,000  $22.2
= $555,000 (1 mark)

Assembly department = Actual direct labour hours  Predetermined overhead absorption rate
= 52,000  $12.02
= $625,040 (1 mark)
(c) Re-apportionment of the maintenance department’s actual production overheads:
Machining Assembly Maintenance
department department department
$ $ $
Actual production overheads 300,000 510,000 400,000 1

Re-apportionment (4 : 1) 320,000 80,000 (400,000) 1

620,000 590,000 — 1

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 Over- or under-absorption of production overheads:
Machining department = Production overheads absorbed  Actual production overheads
= $555,000  $620,000
= $65,000 (under-absorption) (1 mark)

Assembly department = $625,040  $590,000

= $35,040 (over-absorption) (1 mark)

QUESTION 7
Crimson Ltd makes car parts and has two production departments, M and N. The company has chosen direct
labour hours as the overhead absorption base for Department M and machine hours as the overhead
absorption base for Department N.

Budget information at the beginning of the financial year ended 31 December 2013 is as follows:
Department M Department N
Direct labour $6,000,000 $1,800,000
Manufacturing overheads $7,155,000 $11,225,000
Direct labour hours 75,000 hours 28,000 hours
Machine hours 30,000 hours 150,000 hours

For the month of September 2013, the job cost records of Job No. S15 showed the following information:
Department M Department N
Direct materials consumed $10,000 $50,000
Direct labour hours 50 hours 30 hours
Machine hours 10 hours 120 hours

At the end of the financial year, the company ascertained that the actual manufacturing overheads incurred in
Department M and Department N were $7,500,000 and $10,000,000, respectively.

Required:
(a) Calculate the predetermined overhead absorption rates for the production departments. (2 marks)
(b) Calculate the total manufacturing overheads to be charged to Job No. S15 in September 2013.
(2.5 marks)
(c) Calculate the total manufacturing overheads to be absorbed into a job which incurred 48 direct labour
hours and 15 machine hours in Department M, as well as 5 direct labour hours and 25 machine hours
in Department N. (2.5 marks)
(Calculations to two decimal places)

Answer

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(a) Predetermined overhead absorption rates:
Department M = Total budgeted manufacturing overheads  Total budgeted direct labour hours
= $7,155,000  75,000
= $95.4 per direct labour hour (1 mark)

Department N = Total budgeted manufacturing overheads  Total budgeted machine hours

= $11,225,000  150,000
= $74.83 per machine hour (1 mark)

(b) Manufacturing overheads to be charged to Job No. S15:

$
Department M (50  $95.4) 4,770 1

Department N (120  $74.83) 8,979.6 1

13,749.6 0.5

(c) Manufacturing overheads to be absorbed into the job:

$
Department M (48  $95.4) 4,579.2 1

Department N (25  $74.83) 1,870.75 1

6,449.95 0.5

QUESTION 8
Summer Co operates a custom-made kitchen business in Kowloon City. The following information was
obtained from the books for the month of June 2013.
Job No. 100 Job No. 101
Balances at as 1 June 2013:
Direct labour hours 100 hours 80 hours
Material costs $53,360 $32,000

The following cost items were incurred on the jobs undertaken in June 2013:
Job
No.100 No.101 No.111 No.121 No.200 No.201
Direct labour hours 150 120 70 120 150 80
Materials used:
Kitchen appliances $54,000 $98,400 $128,000 $102,400 $72,000 $47,200
Other materials $36,000 $16,000 $24,000 $20,000 $10,000 $30,000
Additional information:
(i) The following jobs were completed in June 2013: Job Nos. 100, 101, 111 and 200.

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(ii) Kitchen appliances and other materials were charged to customers at a mark-up of 40%.
(iii) The cost of direct labour was $80 per hour and the overhead absorption rate was $100 per direct labour
hour.
(iv) The mark-ups applied to direct labour and manufacturing overheads were 50% and 35%, respectively.

Required:
(a) Calculate the total manufacturing costs for each job. (13 marks)
(b) Calculate the profits earned on each completed job. (4 marks)
(c) Calculate the value of work-in-progress as at 30 June 2013. (1 mark)

Answer
(a) Total manufacturing costs:
Job

No.100 No.101 No.111 No.121 No.200 No.201

Direct labour hours (W1) 250 200 70 120 150 80 2

$ $ $ $ $ $

Direct materials:

Balances at 1 June 2013 53,360 32,000 — — — — 0.5

Kitchen appliances 54,000 98,400 128,000 102,400 72,000 47,200 1.5

Other materials 36,000 16,000 24,000 20,000 10,000 30,000 1.5

143,360 146,400 152,000 122,400 82,000 77,200

Direct labour (W2) 20,000 16,000 5,600 9,600 12,000 6,400 3

Manufacturing overheads (W3) 25,000 20,000 7,000 12,000 15,000 8,000 3

188,360 182,400 164,600 144,000 109,000 91,600 1.5

Workings:
(W1) Direct labour hours, Job No. 100 = 100 hours + 150 hours = 250 hours (1 mark)
Direct labour hours, Job No. 101 = 80 hours + 120 hours = 200 hours (1 mark)

(W2) Direct labour, Job No. 100 = 250  $80 = $20,000 (0.5 marks)
Direct labour, Job No. 101 = 200  $80 = $16,000 (0.5 marks)
Direct labour, Job No. 111 = 70  $80 = $5,600 (0.5 marks)
Direct labour, Job No. 121 = 120  $80 = $9,600 (0.5 marks)
Direct labour, Job No. 200 = 150  $80 = $12,000 (0.5 marks)
Direct labour, Job No. 201 = 80  $80 = $6,400 (0.5 marks)

(W3) Manufacturing overheads, Job No. 100 = 250  $100 = $25,000 (0.5 marks)
Manufacturing overheads, Job No. 101 = 200  $100 = $20,000 (0.5 marks)
Manufacturing overheads, Job No. 111 = 70  $100 = $7,000 (0.5 marks)

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 Manufacturing overheads, Job No. 121 = 120  $100 = $12,000 (0.5 marks)
Manufacturing overheads, Job No. 200 = 150  $100 = $15,000 (0.5 marks)
Manufacturing overheads, Job No. 201 = 80  $100 = $8,000 (0.5 marks)

(b) Profits earned:

Job No. 100: ($143,360  40%) + ($20,000  50%) + ($25,000  35%) = $76,094 (1 mark)

Job No. 101: ($146,400  40%) + ($16,000  50%) + ($20,000  35%) = $73,560 (1 mark)

Job No. 111: ($152,000  40%) + ($5,600  50%) + ($7,000  35%) = $66,050 (1 mark)

Job No. 200: ($82,000  40%) + ($12,000  50%) + ($15,000  35%) = $44,050 (1 mark)

(c) Value of work-in-progress:

$
Job No. 121 144,000 0.25

Job No. 201 91,600 0.25

235,600 0.5

QUESTION 9
Albert Ltd is a T-shirt manufacturer. The company has three manufacturing departments: sewing, ironing and
finishing; and two service departments: warehouse and canteen.

The following overheads were budgeted for the year ended 31 December 2011:
Total Sewing Ironing Finishing Warehouse Canteen
$000 $000 $000 $000 $000 $000
Allocated overheads 1,750 500 600 300 200 150
Administrative staff salaries 2,500
Machine maintenance 900
Factory rent 3,500
Machinery depreciation 3,500

Additional information:
Total Sewing Ironing Finishing Warehouse Canteen
Machinery cost ($000) 20,000 15,000 5,000
Factory area occupied (sq. m.) 28,000 8,000 6,000 3,000 5,000 6,000
Machine hours 45,000 35,000 10,000

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Number of employees 800 350 300 100 20 30

The estimated work done by each service department for the other departments is as follows:
Sewing Ironing Finishing Warehouse Canteen
Warehouse 40% 30% 20% — 10%
Canteen 50% 30% 10% 10% —
Required:
Compute the total manufacturing overheads allocated and apportioned to each manufacturing department
using each of the following methods:
(a) Direct method (8 marks)
(b) Repeated distribution method (8 marks)
(c) Algebraic method (7 marks)
(Calculations to the nearest dollar)

Answer
Workings:
Apportionment of overheads:
Basis Total Sewing Ironing Finishing Warehouse Canteen

$ $ $ $ $ $

Allocated overheads 1,750,000 500,000 600,000 300,000 200,000 150,000 1.25

Apportioned overheads:

Administrative staff salaries 1 2,500,000 1,093,750 937,500 312,500 62,500 93,750 1.25

Machinery maintenance 2 900,000 700,000 200,000 — — — 0.5

Factory rent 3 3,500,000 1,000,000 750,000 375,000 625,000 750,000 1.25

Machinery depreciation 4 3,500,000 2,625,000 875,000 — — — 0.5

Total 12,150,000 5,918,750 3,362,500 987,500 887,500 993,750 1.25

Apportionment bases:
1: Number of employees
2: Machine hours
3: Factory area occupied
4: Machinery cost

Apportionment of administrative staff salaries:

Sewing department’s share = $2,500,000  (350  800) = $1,093,750 (0.25 marks)
Ironing department’s share = $2,500,000  (300  800) = $937,500 (0.25 marks)
Finishing department’s share = $2,500,000  (100  800) = $312,500 (0.25 marks)
Warehouse department’s share = $2,500,000  (20  800) = $62,500 (0.25 marks)
Canteen department’s share = $2,500,000  (30  800) = $93,750 (0.25 marks)

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Apportionment of machinery maintenance:
Sewing department’s share = $900,000  (35,000  45,000) = $700,000 (0.25 marks)
Ironing department’s share = $900,000  (10,000  45,000) = $200,000 (0.25 marks)

Apportionment of factory rent:

Sewing department’s share = $3,500,000  (8,000  28,000) = $1,000,000 (0.25 marks)
Ironing department’s share = $3,500,000  (6,000  28,000) = $750,000 (0.25 marks)
Finishing department’s share = $3,500,000  (3,000  28,000) = $375,000 (0.25 marks)
Warehouse department’s share = $3,500,000  (5,000  28,000) = $625,000 (0.25 marks)
Canteen department’s share = $3,500,000  (6,000  28,000) = $750,000 (0.25 marks)
Apportionment of machinery depreciation:
Sewing department’s share = $3,500,000  (15,000,000  20,000,000) = $2,625,000 (0.25 marks)
Ironing department’s share = $3,500,000  (5,000,000  20,000,000) = $875,000 (0.25 marks)

(a) Direct method:

Sewing Ironing Finishing Warehouse Canteen

$ $ $ $ $

Allocated and apportioned

overheads 5,918,750 3,362,500 987,500 887,500 993,750 6

Re-apportionment of overheads:

Warehouse 394,445 295,833 197,222 (887,500) — 0.75

Canteen 552,083 331,250 110,417 — (993,750) 0.75

Total 6,865,278 3,989,583 1,295,139 — — 0.5

(b) Repeated distribution method:

Sewing Ironing Finishing Warehouse Canteen

$ $ $ $ $

Allocated and apportioned

overheads 5,918,750 3,362,500 987,500 887,500 993,750

Re-apportionment of overheads:

Warehouse 355,000 266,250 177,500 (887,500) 88,750 1

6,273,750 3,628,750 1,165,000 — 1,082,500

Canteen 541,250 324,750 108,250 108,250 (1,082,500) 1

6,815,000 3,953,500 1,273,250 108,250 —

Warehouse 43,300 32,475 21,650 (108,250) 10,825 1

6,858,300 3,985,975 1,294,900 — 10,825

Canteen 5,413 3,248 1,082 1,082 (10,825) 1

6,863,713 3,989,223 1,295,982 1,082 —

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 Warehouse 433 325 216 (1,082) 108 1

6,864,146 3,989,548 1,296,198 — 108

Canteen 54 32 11 11 (108) 1

6,864,200 3,989,580 1,296,209 11 —

Warehouse 5 3 2 (11) 1 1

6,864,205 3,989,583 1,296,211 — 1

Canteen 1 — — — (1) 0.25

Total 6,864,206 3,989,583 1,296,211 — — 0.75

(c) Algebraic method:

Let W be the total overheads of the warehouse department after being apportioned the overheads of the
canteen department.
Let C be the total overheads of the canteen department after being apportioned the overheads of the
warehouse department.

The following simultaneous equations are set:

W = $887,500 + 0.1C …… (1)
C = $993,750 + 0.1W …… (2)

Put equation (2) into equation (1):

W = $887,500 + 0.1($993,750 + 0.1W)
= $887,500 + $99,375 + 0.01W
0.99W = $986,875
W = $996,843 …… (3) (2 marks)

Then, put equation (3) into equation (2):

C = $993,750 + 0.1 ($996,843)
= $1,093,434 (2 marks)

Re-apportionment of overheads:
Sewing Ironing Finishing Warehouse Canteen

$ $ $ $ $

Allocated and apportioned

overheads 5,918,750 3,362,500 987,500 887,500 993,750

Re-apportionment of overheads:

Warehouse 398,738 299,053 199,368 (996,843) 99,684 1

Canteen 546,718 328,030 109,343 109,343 (1,093,434) 1

Total 6,864,206 3,989,583 1,296,211 — — 1

NSS BAFS: Frank Wood’s Cost Accounting 28 © Pearson Education Asia Limited 2011
Question Bank
QUESTION 10
Larry Ltd, a sportswear manufacturer, has three production departments: cutting, dyeing and assembly. It
also has two service departments: stores and maintenance. On 1 January 2014, the company accountant
prepared budgets to allocate and apportion manufacturing overheads to these five departments for the year
ended 31 December 2014.

The following budgeted manufacturing overheads were allocated:

Production department Service department
Cutting Dyeing Assembly Stores Maintenance
$ $ $ $ $
Allocated manufacturing overheads 1,195,200 576,000 331,200 496,800 532,800

Budgeted departmental information for the year ended 31 December 2014 is as follows:
Production department
Cutting Dyeing Assembly Stores Maintenance
Area occupied (sq. m.) 1,210 1,210 2,420 605 605
Machinery cost ($) 4,235,000 — 605,000 907,500 302,500
Number of workers 12 24 18 12 6
Direct labour hours 24,321 49,005 36,300 — —
Machine hours 96,800 — 12,100 — —

The following budgeted manufacturing overhead items were to be apportioned:

$
Rent and rates 605,000
Electricity 169,400
Staff welfare 145,200
Machinery depreciation 1,210,000

The budgeted manufacturing overheads of the service departments were to be re-apportioned as follows:
Cutting Dyeing Assembly Stores Maintenance
Stores 30% 20% 30% — 20%
Maintenance 50% 30% 10% 10% —

Actual cost information for the year is as follows:

Direct Machine Manufacturing
labour hours hours overheads
Cutting 24,660 91,960 $2,881,250
Dyeing 47,550 — $1,073,250
Assembly 39,180 11,500 $1,194,370

NSS BAFS: Frank Wood’s Cost Accounting 29 © Pearson Education Asia Limited 2011
Question Bank
Required:
(a) Prepare a table to show the manufacturing overheads to be borne by the production departments for the
year ended 31 December 2014. Using the algebraic method, you need to show clearly the
apportionment and re-apportionment of manufacturing overheads. (Calculations to the nearest dollar)
(14 marks)
(b) Calculate an appropriate manufacturing overhead absorption rate (to two decimal places) for each
production department. (6 marks)
(c) Calculate the over- / under-absorption of manufacturing overheads for each production department.
(3 marks)

Answer
(a) Apportionment of manufacturing overheads:
Basis Total Cutting Dyeing Assembly Stores Maintenance

$ $ $ $ $ $

Allocated manufacturing

overheads 3,132,000 1,195,200 576,000 331,200 496,800 532,800 1.25

Apportionment of

manufacturing overheads:

Rent and rates 1 605,000 121,000 121,000 242,000 60,500 60,500 1.25

Electricity 1 169,400 33,880 33,880 67,760 16,940 16,940 1.25

Staff welfare 2 145,200 24,200 48,400 36,300 24,200 12,100 1.25

Machinery depreciation 3 1,210,000 847,000 — 121,000 181,500 60,500 1

Total 5,261,600 2,221,280 779,280 798,260 779,940 682,840 1

Apportionment bases:
1: Area occupied (sq. m.)
2: Number of workers
3: Machinery cost

Apportionment of rent and rates:

Cutting department’s share = $605,000  (1,210  6,050) = $121,000 (0.25 marks)
Dyeing department’s share = $605,000  (1,210  6,050) = $121,000 (0.25 marks)
Assembly department’s share = $605,000  (2,420  6,050) = $242,000 (0.25 marks)
Stores department’s share = $605,000  (605  6,050) = $60,500 (0.25 marks)
Maintenance department’s share = $605,000  (605  6,050) = $60,500 (0.25 marks)
Apportionment of electricity:
Cutting department’s share = $169,400  (1,210  6,050) = $33,880 (0.25 marks)
Dyeing department’s share = $169,400  (1,210  6,050) = $33,880 (0.25 marks)

NSS BAFS: Frank Wood’s Cost Accounting 30 © Pearson Education Asia Limited 2011
Question Bank
 Assembly department’s share = $169,400  (2,420  6,050) = $67,760 (0.25 marks)
Stores department’s share = $169,400  (605  6,050) = $16,940 (0.25 marks)
Maintenance department’s share = $169,400  (605  6,050) = $16,940 (0.25 marks)

Apportionment of staff welfare:

Cutting department’s share = $145,200  (12  72) = $24,200 (0.25 marks)
Dyeing department’s share = $145,200  (24  72) = $48,400 (0.25 marks)
Assembly department’s share = $145,200  (18  72) = $36,300 (0.25 marks)
Stores department’s share = $145,200  (12  72) = $24,200 (0.25 marks)
Maintenance department’s share = $145,200  (6  72) = $12,100 (0.25 marks)

Apportionment of machinery depreciation:

Cutting department’s share = $1,210,000  (4,235,000  6,050,000) = $847,000 (0.25 marks)
Assembly department’s share = $1,210,000  (605,000  6,050,000) = $121,000 (0.25 marks)
Stores department’s share = $1,210,000  (907,500  6,050,000) = $181,500 (0.25 marks)
Maintenance department’s share = $1,210,000  (302,500  6,050,000) = $60,500 (0.25 marks)

Re-apportionment of manufacturing overheads using the algebraic method:

Let S be the total manufacturing overheads of the stores department after being apportioned the
manufacturing overheads of the maintenance department.
Let M be the total manufacturing overheads of the maintenance department after being apportioned the
manufacturing overheads of the stores department.

The following simultaneous equations are set:

S = $779,940 + 0.1M …… (1)
M = $682,840 + 0.2S …… (2)

Put equation (2) into equation (1):

S = $779,940 + 0.1($682,840 + 0.2S)
= $779,940 + $68,284 + 0.02S
0.98S = $848,224
S = $865,535 …… (3) (2 marks)

Then, put equation (3) into equation (2):

M = $682,840 + 0.2($865,535)
= $855,947 (2 marks)

Re-apportionment of manufacturing overheads:

Cutting Dyeing Assembly Stores Maintenance

$ $ $ $ $

NSS BAFS: Frank Wood’s Cost Accounting 31 © Pearson Education Asia Limited 2011
Question Bank
 Allocated and apportioned

manufacturing overheads 2,221,280 779,280 798,260 779,940 682,840

Re-apportionment of

manufacturing overheads:

Stores 259,661 173,107 259,660 (865,535) 173,107 1

Maintenance 427,973 256,784 85,595 85,595 (855,947) 1

Total 2,908,914 1,209,171 1,143,515 — — 1

(b) Appropriate manufacturing overhead absorption bases:

Cutting department: Machine hours (1 mark)
Dyeing department: Direct labour hours (1 mark)
Assembly department: Direct labour hours (1 mark)

Manufacturing overhead absorption rates:

Cutting department = $2,908,914  96,800 = $30.05 per machine hour (1 mark)
Dyeing department = $1,209,171  49,005 = $24.67 per direct labour hour (1 mark)
Assembly department = $1,143,515  36,300 = $31.50 per direct labour hour (1 mark)

(c) Over- or under-absorption of manufacturing overheads:

Cutting department
= (91,960  $30.05)  $2,881,250
= $117,852 (under-absorption) (1 mark)

Dyeing department
= (47,550  $24.67)  $1,073,250
= $99,809 (over-absorption) (1 mark)

Assembly department
= (39,180  $31.5)  $1,194,370
= $39,800 (over-absorption) (1 mark)

NSS BAFS: Frank Wood’s Cost Accounting 32 © Pearson Education Asia Limited 2011
Question Bank