... following information has been extracted from the draft budget prepared by the Management Accountant for the year 2012/13.
Department P1 P2 P3 S1 S2
Ratio of floor area occupied 15 9 3 3 2 Ratio of machine value 12 5 4 2 1 Usage of electricity (kw) 3,000 1,800 600 600 400 Ratio of direct labour hours 16 9 5 - - Ratio of apportioning cost of S1 2 1 1 - - Ratio of apportioning cost of S2 2 3 5 - - Direct labour rate per hour (Rs.) 684 630 612 - -
Budgeted Production Overhead for the year 2012/13
Department P1 P2 P3 S1 S2
Specifically allocated overheads (Rs.’000)
504 306 216 142 108
Other common budgeted production overhead for the year 2012/13
Total (Rs.’000) Rent 2,304 Production Manager’s salary 4,320 Electricity 1,728 Machine Insurance 1,080 Depreciation 3,240 12,672
Alpha (Pvt) Ltd. absorbs its overhead based on direct labour hours.
No. of Pages : 06 No. of questions : 07
21-07-2012 Afternoon [2.00-5.00]
2
You are required to:
(a) Prepare a schedule showing production overhead apportioned to each of the three production departments, using appropriate bases of apportionment. (07 marks)
(b) Compute the overhead absorption rate for each of the three production departments, if the budgeted total direct labour hours for the three production departments are 6,000 hours. (03 marks)
(c) Compute the price to be quoted for product X, as the company has been invited to quote for this product. It is estimated that direct material cost per product would be Rs.27,720/- and direct labour hours per product required in the 3 departments of P1, P2 and P3 would be 20, 12 and 10 hours respectively. The company keeps a 30% margin on its selling price.(04 marks)
(d) Explain why budgeted overhead rates should be used in preference to actual overhead rates. (02 marks) (Total 16 marks)