Play-with-fire Ltd manufactures plastic model kits for the toy market. It operates two production cost centres (Moulding and Assembly} and a service department (Canteen}. The following overheads budget for 2015-2016 has been submitted. Overhead budget Total (N$) Rent of premises and council rates 13 500 Depreciation of machinery 28 000 Running costs of canteen 8 000 Power and lightning 18 000 Further data relating to the factory: Moulding Assembly Canteen Floor area (square meters) 750 500 250 Machine hours 2000 5000 1500 Value of machine (N$) 400 000 100 000 - Kilowatt hours used 80 55 15 Number of production employees 40 100 20 Direct labour hours 6000 2000 - The canteen department costs are to be reapportioned using the number of production employees Required: {1} Allocate, where applicable and to the nearest N$, each of the overheads using an appropriate allocation base between the production departments and canteen department. {2) Re-apportion the canteen department's overheads to the production departments using the number of production employees, to the nearest N$. {3} Calculate the overhead absorption rates {OAR}/predetermined overhead rate for the Moulding and Assembly Departments (two decimal places}. The overheads absorption rates {OAR} are allocated to the Moulding department on the basis of machine hours and in the Assembly department on the basis of direct labour hours

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Play-with-fire Ltd manufactures plastic model kits for the toy market. It operates two production cost centres (Moulding and Assembly} and a service department (Canteen}.

The following overheads budget for 2015-2016 has been submitted.

Overhead budget	Total (N$)
Rent of premises and council rates	13 500
Depreciation of machinery	28 000
Running costs of canteen	8 000
Power and lightning	18 000

Further data relating to the factory:

	Moulding	Assembly	Canteen
Floor area (square meters)	750	500	250
Machine hours	2000	5000	1500
Value of machine (N$)	400 000	100 000	-
Kilowatt hours used	80	55	15
Number of production employees	40	100	20
Direct labour hours	6000	2000	-

The canteen department costs are to be reapportioned using the number of production employees

Required:
{1} Allocate, where applicable and to the nearest N$, each of the overheads using an
appropriate allocation base between the production departments and canteen
department.
{2) Re-apportion the canteen department's overheads to the production departments
using the number of production employees, to the nearest N$.
{3} Calculate the overhead absorption rates {OAR}/predetermined overhead rate for the
Moulding and Assembly Departments (two decimal places}. The overheads absorption
rates {OAR} are allocated to the Moulding department on the basis of machine hours
and in the Assembly department on the basis of direct labour hours

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