Question: Precious Hands limited offers specialist engineering services to the car industry. It has two production departments, i.e., machining and finishing and a service department which maintains the machinery of both departments. The budgeting software shows that expected production overheads for the forthcoming year are:
Rent and rates 5520
Buildings insurance 1320
Insurance of machinery 1650
Lighting and heating 3720
Depreciation of machinery 11000
Supervisors` salary 30000
Maintenance department salary 23590
Factory cleaning 4800
The following additional information is available:
machining finishing maintenance
Floor space (square metres) 300 200 100
Number of employees 6 3
Carrying amount of machinery P 40000 P 15000
a) Prepare an analysis of production overheads showing the basis of allocation and apportionment to the three departments of the business.
b) Re-apportion the service department overheads to production departments on the basis of value of machinery.
c) The factory works a 35-hour week for 47 each year. Calculate an overhead absorption rate based on direct labour hours or each of the two production departments.