Question Tag: Overhead Absorption Rate

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  • 15 Marks

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

Smooth Sailing Ltd is a medium-sized company that specializes in the construction of iron gates for clients. It has three production departments through which all jobs are processed: Assembling, Welding, and Finishing. The following data relates to the year ended 30 September 2015:

Budgeted Data:

Assembling Welding Finishing
Overheads (GH¢) 64,050 108,900 83,520
Direct labour hours – – 14,400
Machine hours 5,250 6,600 –

Job CA2 was undertaken during the last month of the year recording the following:

Direct materials:

  • From stores: GH¢16,500
  • Bought-in: GH¢12,600

Direct labour:

  • Assembling: 450 hours @ GH¢8/hr
  • Welding: 535 hours @ GH¢8/hr
  • Finishing: 1,235 hours @ GH¢6/hr

Machine hours:

  • Assembling: 425
  • Welding: 532
  • Finishing: –

Trials and testing cost of GH¢5,400 is incurred on each job.

It is company policy to make a mark-up of 50% of profit on each job.

Required:

i) Calculate an appropriate overhead absorption rate for each department for the year ended 30 September 2015. (5 marks)

ii) Determine the total costs, and hence, the price of Job CA2. (10 marks)

 

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  • 20 Marks

IMAC – JULY 2024 – L1 – Q4 – Cost-Volume-Profit (CVP) Analysis

Calculate overhead absorption rates, explain under and over absorbed overheads, and discuss the effect of over absorbed overhead on profit and CVP analysis assumptions.

a) The statement below shows the summary of overheads that have been apportioned to the four departments operating in MMS Ltd with additional information.

Department 1 2 3 4
Total overheads (GH¢) 45,000 35,000 20,000 40,000
Labour hours 1,200 1,000 800 1,500
Units produced 8,000 6,000 4,000 7,000
Machine hours 2,500 3,000 1,800 4,000
Prime cost per unit (GH¢) 42 25 30 34

Required:
i) Calculate THREE (3) plant-wide (blanket) overhead absorption rates. (6 marks)
ii) Calculate TWO (2) overhead absorption rates for department 1. (3 marks)

b) Explain under and over absorbed overheads. (3 marks)

c) State the effect of over absorbed overhead on reported profit. (3 marks)

d) State FOUR (4) assumptions underlying cost-volume-profit (CVP) analysis. (5 marks)

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  • 20 Marks

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

a) Services are the non-physical, intangible parts of the Ghanaian economy, as opposed to goods, which we can touch or handle. Services, such as banking, education, medical treatment, and transportation make up a significant percentage of the economy.

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department Budgeted overhead Labour hours
Welding GH¢12,000 3,000
Assembly GH¢20,000 2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

  • Material cost: GH¢24,000
  • Labour:
    • Welding: 200 hours @ GH¢5 per hour
    • Assembly: 400 hours @ GH¢2 per hour
  • GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

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  • 15 Marks

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

Smooth Sailing Ltd is a medium-sized company that specializes in the construction of iron gates for clients. It has three production departments through which all jobs are processed: Assembling, Welding, and Finishing. The following data relates to the year ended 30 September 2015:

Budgeted Data:

Assembling Welding Finishing
Overheads (GH¢) 64,050 108,900 83,520
Direct labour hours – – 14,400
Machine hours 5,250 6,600 –

Job CA2 was undertaken during the last month of the year recording the following:

Direct materials:

  • From stores: GH¢16,500
  • Bought-in: GH¢12,600

Direct labour:

  • Assembling: 450 hours @ GH¢8/hr
  • Welding: 535 hours @ GH¢8/hr
  • Finishing: 1,235 hours @ GH¢6/hr

Machine hours:

  • Assembling: 425
  • Welding: 532
  • Finishing: –

Trials and testing cost of GH¢5,400 is incurred on each job.

It is company policy to make a mark-up of 50% of profit on each job.

Required:

i) Calculate an appropriate overhead absorption rate for each department for the year ended 30 September 2015. (5 marks)

ii) Determine the total costs, and hence, the price of Job CA2. (10 marks)

 

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  • 20 Marks

IMAC – JULY 2024 – L1 – Q4 – Cost-Volume-Profit (CVP) Analysis

Calculate overhead absorption rates, explain under and over absorbed overheads, and discuss the effect of over absorbed overhead on profit and CVP analysis assumptions.

a) The statement below shows the summary of overheads that have been apportioned to the four departments operating in MMS Ltd with additional information.

Department 1 2 3 4
Total overheads (GH¢) 45,000 35,000 20,000 40,000
Labour hours 1,200 1,000 800 1,500
Units produced 8,000 6,000 4,000 7,000
Machine hours 2,500 3,000 1,800 4,000
Prime cost per unit (GH¢) 42 25 30 34

Required:
i) Calculate THREE (3) plant-wide (blanket) overhead absorption rates. (6 marks)
ii) Calculate TWO (2) overhead absorption rates for department 1. (3 marks)

b) Explain under and over absorbed overheads. (3 marks)

c) State the effect of over absorbed overhead on reported profit. (3 marks)

d) State FOUR (4) assumptions underlying cost-volume-profit (CVP) analysis. (5 marks)

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  • 20 Marks

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

a) Services are the non-physical, intangible parts of the Ghanaian economy, as opposed to goods, which we can touch or handle. Services, such as banking, education, medical treatment, and transportation make up a significant percentage of the economy.

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department Budgeted overhead Labour hours
Welding GH¢12,000 3,000
Assembly GH¢20,000 2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

  • Material cost: GH¢24,000
  • Labour:
    • Welding: 200 hours @ GH¢5 per hour
    • Assembly: 400 hours @ GH¢2 per hour
  • GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

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