- 20 Marks
IMAC – MAY 2021 – L1 – Q4 – Accounting for Overheads
Apportionment of service center costs to production departments and calculation of direct materials price variance.
Question
a) The summary of overheads for the three production departments and two service departments of a company have been provided below.
| Department | A | B | C | S1 | S2 |
|---|---|---|---|---|---|
| Overheads (GH¢) | 20,000 | 15,000 | 25,000 | 18,000 | 12,000 |
The service departmental costs are apportioned as follows:
| A | B | C | S1 | S2 | |
|---|---|---|---|---|---|
| S1 | 25% | 30% | 35% | – | 10% |
| S2 | 30% | 30% | 25% | 15% | – |
Required: Apportion the service center costs and determine the total production departments’ overheads after the apportionment. (15 marks)
b) Concrete Masters Ltd uses two main materials, Q and R, in the manufacture of its concrete blocks for sale. The materials are combined in the ratio 3:2 respectively. The following information has been extracted from the operating records of the company for the half-year ended 31 December, 2020:
Standard prices:
| Material | Price (GH¢) |
|---|---|
| Q | 50 |
| R | 30 |
Actual Results:
| Material | Quantity (kg) | Total Cost (GH¢) |
|---|---|---|
| Q | 9,000 | 405,000 |
| R | 8,000 | 256,000 |
Required: Compute the Direct Materials Price Variance for each material and the total for the company. (5 marks)
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