Question

a)Explain the terms overhead allocation, overhead apportionment and overhead absorption                                                                           

b)Azu Company Limited is divided into four (4) cost centers.

That is A, B, as production departments and Human Resource & Repairs as service departments The actual cost of a period is as follows

                                                A                     B                     HR           Repairs

                                                GHS                GHS                 GHS           GHS

Indirect materials                   35                     150                  -                       25

Maintenance wages                160                   250                  300                  325

Other overheads as follows:

                                                                        GHS

Supervision                                                     1500

Power                                                              1800

Rent                                                                300

Repairs of plants                                             1200

Depreciation of plants                                     850

Depreciation of building 720

The following information is available in respect of the departments:

                                                            A                     B                     HR            Repairs

Area occupied in square feet              1500              1100                900                  500

Number of employees                               20              15                    10                    5

Value of plant £                                  6000               4500                3000                1500

HZ Power                                             10000               9000             6000                5000

Required

1. Prepare an overhead analysis sheet by the most reasonable approach and estimate the overhead cost incurred in each cost center
2. Department A & B are production departments whereas HR & Repairs are there to service these production departments. Assume these two service departments do not render any service to each other. Using equitable and fair as appropriate as possible re-apportion the HR & Repairs overheads to the production departments