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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.

Accounting Basics, Accounting

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