Prepare an overhead analysis statement to allocate and apportion overheads to the cost centres

1. Cameron’s plc manufactures high quality sofas and chairs for the interior design
market. The business has 3 production departments (A, B and C) and 2 service
departments (D and E). The following data has been provided:
Indirect Wages Dept A £60,000
£144,350
Dept B £27,400
Dept C £21,250
Dept D £26,000
Dept E £9,700
Insurance of Property £23,000
Supervisor’s salary £30,000
Rent and rates £166,750
Power £34,600
Depreciation of Plant and Machinery £56,000
Total £454,700
Additional Information:
Dept A Dept B Dept C Dept D Dept E
Area (sq m) 4,000 2,000 1,000 1,500 3,000
No of employees 30 24 20 10 16
Metered power (kw hrs) 1,620 240 200 600 800
Plant and Machinery at cost £150,000 £40,000 £10,000 £20,000 £60,000
Direct machine hours 22,000 12,000 2,875 3,000 1,000
Direct labour
(at £12 per hour) £162,000 £360,000 £252,000 – –
(a) Prepare an overhead analysis statement to allocate and apportion overheads to
the cost centres.
(b) Re-apportion the costs of service department E to the other departments on the
basis of number of employees.
(c) Re-apportion the costs of service department D to the other departments on the
basis of machine hours.
(d) Calculate the overhead absorption rate for each of the production departments
as follows:
Dept A – direct machine hours
Dept B – percentage of direct labour cost
Dept C – direct labour hours.

Actual production department data for the period is as follows:
Dept A Dept B Dept C
Direct machine hours 20,500 25,000 23,250
Direct labour cost £180,000 £370,000 £275,000
Direct labour hours 21,300 20,000 19,750
Overheads £242,000 £122,400 £75,000
(e) Calculate the amount of overhead over/under absorbed in each department.
Your answer must clearly state whether the amount is over or under absorbed.
Cameron’s plc is in the process of putting together a quote for a client, who has
requested information as to the cost of producing 20 luxury sofas for their hotel. The
following data has been made available for Job CC006.
Direct Material:
Material X – 10 metres per sofa @ £20 per metre
Material Y – £10 per metre — used at a rate of 1 metre for every 10 of Material X
Stuffing material – 4 kg per sofa. Stuffing material is provided in large rolls of 200 kg,
each of which costs £500.
Direct Labour:
Dept A – 40 labour hours
Dept B – 20 labour hours
Dept C – 6 labour hours
Machine Hours:
Dept A – 40 hours
Dept B – 30 hours
Dept C – 20 hours
Direct expenses are expected to total £239.
Profit margin is set at 25%.
(f) Prepare a job cost statement to calculate the selling price of Job CC006.
For the year ahead, the Finance Director is considering using a factory wide overhead
absorption rate, based on units produced. Current estimates show that fixed costs
are likely to be £420,000 and that production is expected to be 10,000 units.
(g) (i) Calculate the estimated overhead absorption rate for the coming year.
(ii) Calculate the change in the total cost of Job CC006, if the factory wide
overhead absorption rate had been applied.