Reference no: EM131883455

Problem - Makers Ltd is a manufacturing company that has three production departments known as Department A, B and C. The production overhead is absorbed on the basis of a percentage of direct labour cost for the factory as a whole. It has been suggested that a departmental overhead absorption rate would result in more accurate job costs.

Below are the budgeted and actual data for the year ended 31' October, 2008.

Budgeted costs:	Direct wages $	Direct labour hours	Machine hours	Production Overheads $
Department A	25,000	10,000	40,000	120,000
Department B	100,000	50,000	10,000	30,000
Department C	25,000	25,000	-	75,000
Total	150,000	85,000	50,000	225,000
Actual costs:
Department A	30,000	12,000.	45,000	130,000
Department B	80,000	45,000	14,000	28,000
Department C	30,000	30,000	-	80,000
Total	140,000	87,000	59,000	238,000

During the period job no. 567 was completed and actual costs and actual hours of the job incurred in each department are shown below:

	Direct materials $	Direct wages $	Direct labour hours	Machine hours
Department A	120	100	20	40
Department B	60	60	40	10
Department C	10	10	10	-

a) Calculate the overhead absorption rate currently in use.

b) Calculate the departmental overhead absorption rate for each department using the following basis:

Department A - machine hours

Department B - direct labour hours

Department C - direct wages

c) Using the overhead absorption rates calculated in part (b) above, determine the total cost for job no. 567 and its selling price if a profit margin is to be maintained at 20% of the selling price.

d) Show the over/under absorption of production overheads for each department using:

i. the OAR calculated in part (a) above

ii. the OAR calculated in part (b) above