- 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.
Question
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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