To calculate the absorption rates using various bases of apportionment, we first need to understand how to allocate overheads to production departments. Common bases for apportionment include machine hours, direct labour hours, and units of production.
Given the data:
- Overhead cost in Dept A: $36,000
- Overhead cost in Dept B: $5,000
- Total overhead cost: $41,000
Other budget data:
- Direct materials cost:
* For Dept A: Not provided (irrelevant for overhead absorption rate)
* For Dept B: $32,000
- Direct labour cost: $40,000
- Machine hours: 10,000
- Direct labour hours: 18,000
- Units of production: 1,000
### Absorption Rate Based on Machine Hours
1. Calculate the total machine hours.
- Given: 10,000 machine hours (no breakdown provided per department)
2. Calculate the absorption rate per machine hour.
\[
\text{Absorption rate (Machine Hour) } = \frac{\text{Total overheads}}{\text{Total machine hours}} = \frac{41,000}{10,000} = \$4.10 \text{ per machine hour}
\]
### Absorption Rate Based on Direct Labour Hours
1. Calculate the total direct labour hours.
- Given: 18,000 direct labour hours (no breakdown provided per department)
2. Calculate the absorption rate per direct labour hour.
\[
\text{Absorption rate (Direct Labour Hour) } = \frac{\text{Total overhead}}{\text{Total direct labour hours}} = \frac{41,000}{18,000} = \$2.28 \text{ per direct labour hour}
\]
### Absorption Rate Based on Units of Production
1. Calculate the total units of production.
- Given: 1,000 units (no breakdown provided per department)
2. Calculate the absorption rate per unit.
\[
\text{Absorption rate (Units of Production) } = \frac{\text{Total overhead}}{\text{Total units of production}} = \frac{41,000}{1,000} = \$41.00 \text{ per unit}
\]
### Departmental Absorption Rates
If overhead costs need department-specific absorption rates, calculated based on either labour hours, machine hours or units, one would allocate overheads first:
#### For Dept A:
- Overhead cost: $36,000
##### Machine Hours Base:
\[
\text{Dept A Machine Hour Absorption} = \frac{36,000}{10,000} = \$3.60 \text{ per machine hour}
\]
##### Labour Hours Base:
\[
\text{Dept A Labour Hour Absorption} = \frac{36,000}{18,000} = \$2.00 \text{ per direct labour hour}
\]
##### Units of Production Base:
\[
\text{Dept A Units Production Absorption} = \frac{36,000}{1,000} = \$36.00 \text{ per unit}
\]
#### For Dept B:
- Overhead cost: $5,000
##### Machine Hours Base:
\[
\text{Dept B Machine Hour Absorption} = \frac{5,000}{10,000} = \$0.50 \text{ per machine hour}
\]
##### Labour Hours Base:
\[
\text{Dept B Labour Hour Absorption} = \frac{5,000}{18,000} = \$0.28 \text{ per direct labour hour}
\]
##### Units of Production Base:
\[
\text{Dept B Units Production Absorption} = \frac{5,000}{1,000} = \$5.00 \text{ per unit}
\]
These calculations assume an even split of apportionment criteria across departments. If more specific departmental data were provided (like machine and labour hours per department), those specifics would be used to refine the absorption rates for each department.
The budgeted production overheads and other budget data of Bridge Cottage Co are as follows.
Budget
Overhead cost
Direct materials cost
Direct labour cost
Machine hours
Direct labour hours
Units of production
Required
Production
Production
dept A
dept B
$36,000
$5,000
$32,000
$40,000
10,000
gspot
18,000
1,000
Calculate the absorption rate using the various bases of apportionment
1 answer