Question

PART 2.2 (15) XYZ Limited, a holding company of Maphitha Limited, is an engineering company which uses job costing to attribute costs to individual products and provided to its customers. It has commenced the preparation of its fixed production overhead cost budget for the next financial year and has identified the following costs: Machining R6 000 000 Assembly R2 500 000 Finishing R1 500 000 Stores R1 000 000 Maintenance R800 000 The stores and maintenance departments are service departments. An analysis of the services they provide indicates that their costs should be apportioned as follows: Machining Assembly Finishing Stores Maintenance Stores 40% 30% 20% 10% Maintenance 60% 20% 20% Machining department uses the machine hours as the basis for the absorption rate, whereas Assembly and Finishing departments use labour hours as the basis for the absorption rate. The number of machine and labour hours budgeted for the next financial year are as follows: Machining Assembly Finishing Machine hours 50 000 20 000 5 000 Labour hours 10 000 30 000 20 000 REQUIRED: 2.2.1 Calculate overhead absorption rates for each production department for the next financial year. (12) 2.2.2 Explain the over absorption and under absorption of production overheads. (30) (3)