Reference no: EM132561423

BLUELINE Ltd manufactures many different products which pass through two production cost centres (P1 and P2).

There are also two service cost centres (S1 and S2) in the factory. The following information has been extracted from the budget for the coming year:

                                                            COST CENTRES

                                                                       P1                P2                         S1                                 S2

Allocated and apportioned production

overheads                                      K477,550          K404,250         K132,000           K96,000

Number of employees                             30                  65                   10                    15

Total direct labour hours                        68,000                                       11,400

Total machine hours                               4,000                                           14,000

Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5 to 3 respectively.

Required:

Question (a) Calculate:

(i) the machine hour absorption rate for cost centre P1, and

(ii) the direct labour hour absorption rate for cost centre P2.

Question (b) Explain the difference between production overheads that have been 'allocated' and those which have been 'apportioned' to cost centres.

Question (c) Explain why some manufacturing companies are able to allocate electric power costs to production cost centres, whereas others can only apportion them