Question

QUESTION 2 (TOPIC: OVERHEAD COSTING)

Given: Total budgeted overheads = Shs.240, 000 and the Production budget is given as follows:

Product A B

i) Units 20,000 10,000

ii) Labour hours 20,000 20,000

iii) Labour cost Shs.17,500 Shs.22,500

iv) Machine hours 45,000 15,000

v) Material cost Shs.15,000 Shs.25,000

Required;

The overhead absorption rate per unit of A and B using the following methods:

a) Unit method

b) Percentage on material cost.

c) Percentage on labour cost.

d) Percentage On prime cost.

e) Labour hour rate.

f) Machine hour rate.

Answer 1

a) Unit method

overhead absorption rate= $\frac{Total budgeted overheads}{Units}$

Of A: =$\frac{Shs240,000}{20,000}=Shs$. 12 per unit of B: =$\frac{Shs240,000}{10,000}=Shs$. 24 per unit

b) Percentage on material cost.

overhead absorption rate= $\frac{Total budgeted overheads}{Material costs}$

Of A: =$\frac{Shs240,000}{15,000}\times100\%=1600\%$ Of B: =$\frac{Shs240,000}{25,000}\times100\%=960\%$

c) Percentage on labour cost.

overhead absorption rate= $\frac{Total budgeted overheads}{Labourcosts}$

Of A: =$\frac{Shs240,000}{17,500}\times100\%=1371.43\%$ Of B: =$\frac{Shs240,000}{22,500}\times100\%=1066.67\%$

d) Percentage On prime cost.

overhead absorption rate= $\frac{Total budgeted overheads}{Primecosts}$

Of A: =$\frac{Shs240,000}{32,500}\times100\%=738.46\%$ Of B: =$\frac{Shs240,000}{47,500}\times100\%=505.26\%$

e) Labour hour rate.

overhead absorption rate= $\frac{Total budgeted overheads}{labour hours}$

Of A: =$\frac{Shs240,000}{20,000}=Shs$. 12 per unit Of B: =$\frac{Shs240,000}{20,000}=Shs$. 12 per unit

f) Machine hour rate.

overhead absorption rate= $\frac{Total budgeted overheads}{machine hours}$

Of A: =$\frac{Shs240,000}{45,000}=Shs$. 5.33 per machine hour Of B =$\frac{Shs240,000}{15,000}=Shs$. 16 per machine hour