Cost Assignment

(3 marks) (d) Explain briefly why overhead absorbed using predetermined rates may differ from actual overhead incurred for the same period.

(2 marks) (Total 14 marks) ACCA Foundation Paper 3 Question IM 3.12 Intermediate: Reapportionment of service department costs JR Co.

(3 marks) (d) The company has been asked to price job AX, this job requires the following: Direct material Direct labour Direct expenses Machine hours Labour hours £3788 £1100 £422 120 220 Compute the price for this job using the absorption rate selected in (c) above, given that the company profit margin is equal to 10% of the price.

(6 marks) (e) The company previously paid its direct labour workers upon a time basis but is now contemplating moving over to an incentive scheme.

It has the following factory costs which are expected to be incurred in the year to 31 December: (£) Direct wages Machining Assembly Finishing Indirect wages and salaries Machining Assembly Finishing 234 980 345 900 134 525 £ 120 354 238 970 89 700 Question IM 3.5 Intermediate: Overhead analysis sheet and calculation of overhead absorption rates £ Factory rent Business rates Heat and lighting Machinery power Depreciation Canteen subsidy 12 685 500 3 450 900 985 350 2 890 600 600 000 256 000 Other information is available as follows: Machining Number of employees Floor space occupied (m2) Horse power of machinery Value of machinery (£000) Number of labour hours Number of machine hours 50 1 800 13 000 250 100 000 200 000 Assembly Finishing 60 1 400 500 30 140 000 36 000 18 800 6 500 120 35 000 90 000 You are required (a) to prepare the company’s overhead analysis sheet for the year to 31 December; (9 marks) (b) to calculate appropriate overhead absorption rates (to two decimal places) for each department.

(6 marks) (Total: 15 marks) CIMA Stage 1 Accounting COST ASSIGNMENT 7 Required: (a) Prepare pre-determined overhead absorption rates for production overheads based upon the three different bases for absorption mentioned above.

Ltd’s budgeted overheads for the forthcoming period applicable to its production departments, are as follows: (£000) 1 2 870 690 The budgeted total costs for the forthcoming period for the service departments, are as follows: (£000) G H 160 82 The use made of each of the services has been estimated as follows.

Production department G(%) H(%) 1 60 50 Service department 2 30 30 G — 20 H 10 — Required: Apportion the service department costs to production departments: (i) using the step-wise (elimination) method, starting with G; (ii) using the reciprocal (simultaneous equation) method; (iii) commenting briefly on your figures.

Required: (a) Calculate appropriate pre-determined absorption rates for the year ended 31 December (4 marks) COST ASSIGNMENT 9 (b) (i) Calculate the under/over absorption of overhead for each department of the company for March; (4 marks) (ii) Comment on the problems of using predetermined absorption rates based on the arbitrary apportionment of overhead costs, with regard to comparisons of actual/target performance; (4 marks) (c) State the reasons why absorption costing is used by companies.

(3 marks) (Total 15 marks) CIMA Stage 1 Accounting Question IM 3.9 Intermediate: Various overhead absorption rates AC Limited is a small company which undertakes a variety of jobs for its customers.


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