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Aug 24, 2023
  • Question:¬†Precious Hands limited offers specialist engineering services to the car industry. It has two production departments, i.e., machining and finishing and a service department which maintains the machinery of both departments. The budgeting software shows that expected production overheads for the forthcoming year are:

    Overheads Pula
    Rent and rates 5520
    Buildings insurance 1320
    Insurance of machinery 1650
    Lighting and heating 3720
    Depreciation of machinery 11000
    Supervisors` salary 30000
    Maintenance department salary 23590
    Factory cleaning 4800
    The following additional information is available:
    machining finishing maintenance
    Floor space (square metres) 300 200 100
    Number of employees 6 3
    Carrying amount of machinery P 40000 P 15000

    Required:

    a) Prepare an analysis of production overheads showing the basis of allocation and apportionment to the three departments of the business.

    b) Re-apportion the service department overheads to production departments on the basis of value of machinery.

    c) The factory works a 35-hour week for 47 each year. Calculate an overhead absorption rate based on direct labour hours or each of the two production departments.

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Total: $120

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