Reference no: EM132543371
FIFO Limited has gathered the following information: Dept A Dept B Dept C
Value of machinery R600 000 R300 000 R150 000
Material usage R200 000 R150 000
Floor area ( 2) 2 000 1 200 400
Number of employees 500 300 100
Machine hours 5 000 8 000 1 000
Kilowatt-hours 9 000 7 000 2 000
Departments A and B are production departments, and department C is a service department.
Machine hours are used as a basis for the secondary allocation. The following expenses were
incurred during the first production year.
Insurance on buildings R120 000
Depreciation of machinery R75 000
Cafeteria costs R37 500
Water and electricity R115 500
Required:
a) Allocate the overheads to the different departments. Show both the primary as well as the secondary allocation of the overheads.
b) Calculate the overhead allocation rates for Department A based on material usage, and for Department B, based on machine hours.