problem 1) Smiles Ltd has the following estimates of expenditure for the forthcoming accounting period:
Machining Finishing Marketing Club House Total
Rs 000 Rs 000 Rs 000 Rs 000 Rs 000
Indirect labour 1,200 1,400 500 300 3,400
Consumables 240 320 60 200 820
Rent and Rates 360
Depreciation 600
Supervision 480
Electricity 400
Additional information is as follows:
Machining Finishing Marketing Club House Total
Plant & Equipment (Rs) 300,000 240,000 40,000 20,000 600,000
People employed 80 60 20 160
Floor are (M2) 20,000 24,000 10,000 6,000 60,000
Kilowatt hours 9,000 8,000 2,000 1,000 20,000
The services of the Marketing department is used in the ratio of 2:3. The budgeted hours of activity was 126,400 machine hours for Machining, 157,000 labour hours for Finishing and 16,000 hours for Marketing.
Required:
(a) Analyse overheads specifying basis of apportionment.
(b) Compute the overhead absorption rate for Machining and Finishing and describe the relevance of the basis used.
(c) If the actual overheads for Machining were Rs 3,000,000 and the actual number of machine hours worked was 120,000 hours Compute the overhead under or over recovered and comment on result obtained.