Question

Prepare an overhead analysis using the following data and calculate suitable overhead absorption rates for the Milling, Assembly and Spraying departments. The data relate to one accounting period. (10 Points)

Sh. - Kenya Shilling. (please keep in Sh.)

Basic data
	Production Cost centres			Service cost centres
	Milling	Assembly	Spraying	Stores	Maintence	Totals
No. of employees	30	75	25	6	14	150
Labour hours	1,510	3,320	950	252	595	6,627
Machine & Plant value (Sh.)	225,000	75,000	45,000	17,000	85,000	447,000
Area (M2)	7,500	10,000	3,500	500	1,000	22,500
Material requisitions	1,400	300	250		550	2,500
Maintenance hours (Minor work)	75	30	45			150
KWH (‘000)	300	70	50	10	170	600
Machine hours	8,400	1,100	300			9,800
During the period the following data were recorded:
	Sh.	Sh.	Sh.	Sh.	Sh.	Sh.
Indirect materials	25,000	10,000	15,000	3,000	17,000	70,000
Indirect Labour	52,500	25,000	22,500	42,500	117,500	260,000
Major Maintenance	185,000	75,000	45,000			305,000

The following details were obtained from the accounts relating to the period.

	Sh.
Fire insurance	12,500
Power	45,000
Heating and lighting	20,000
Rates	18,000
Machine depreciation	84,000
Machine insurance	8,500
Canteen deficit	42,500
Balance of maintenance costs (Excl. major works)	175,000

Answer 1

Basic data
	Production Cost centres			Service cost centres
	Milling	Assembly	Spraying	Stores	Maintence	Totals
No. of employees	30	75	25	6	14	150
Labour hours	1,510	3,320	950	252	595	6627
Machine & Plant value (Sh.)	225,000	75,000	45,000	17,000	85,000	447000
Area (M2)	7,500	10,000	3,500	500	1,000	22500
Material requisitions	1,400	300	250		550	2500
Maintenance hours (Minor work)	75	30	45			150
KWH (‘000)	300	70	50	10	170	600
Machine hours	8,400	1,100	300			9800
During the period the following data were recorded:
	Sh.	Sh.	Sh.	Sh.	Sh.	Sh.
Indirect materials	25,000	10,000	15,000	3,000	17,000	70000
Indirect Labor	52,500	25,000	22,500	42,500	117,500	260000
Major Maintenance	185,000	75,000	45,000			305000

COST ALLOCATION
	TOTAL	Milling	Assembly	Spraying
Indirect materials	$    50,000	25,000	10,000	15,000
Indirect Labor	$ 100,000	52,500	25,000	22,500
Major Maintenance	$ 305,000	185,000	75,000	45,000
	$ 455,000	$                                        262,500	$                                              110,000	$                                                        82,500

				Rate per overhead
	Sh.	cost drivers	COST DRIVER FACTOR TOTAL	COST PER COST DRIVER FACTOR	Milling	Assembly	Spraying
Fire insurance	12,500	Area (M2)	22500	0.56	4,166.67	5,555.56	1,944.44
Power	45,000	KWH (‘000)	600	75.00	22,500.00	5,250.00	3,750.00
Heating and lighting	20,000	KWH (‘000)	600	33.33	10,000.00	2,333.33	1,666.67
Rates	18,000	Labor hours	6627	2.72	4,101.40	9,017.66	2,580.35
Machine depreciation	84,000	Machine & Plant value (Sh.)	447000	0.19	42,281.88	14,093.96	8,456.38
Machine insurance	8,500	Machine & Plant value (Sh.)	447000	0.02	4,278.52	1,426.17	855.70
Canteen deficit	42,500	No. of employees	150	283.33	8,500.00	21,250.00	7,083.33
Balance of maintenance costs (Excl. major works)	175,000	Machine hours	9800	17.86	150,000.00	19,642.86	5,357.14
	405,500				245,828.47	78,569.54	31,694.02