Cost Assignment

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(8 marks) (Total 20 marks) ACCA Paper 8 Managerial Finance Question IM 3.13 Advanced: Reapportionment of service department costs and comments on apportionment and absorption calculation 12 The Isis Engineering Company operates a job order costing system which includes the use of predetermined overhead absorption rates.

The company has two service cost centres and two production cost centres.

(20 marks) CIMA Cost Accounting 1 Question IM 3.2 Intermediate Critically consider the purpose of calculating production overhead absorption rates.

Question IM 3.3 Intermediate (a) Specify and explain the factors to be considered in determining whether to utilize a single factory-wide recovery rate for all production overheads or a separate rate for each cost centre, production or service department.

Department C is expected to produce 148 000 units of final product in the budget period.

The company will operate for 48 weeks in the budget period.

Department A has 10 direct employees, who each work 37 hours per week.

Department B has five machines, each or which is operated for 24 hours per week.

Its budget for the year ended 31 December shows that it expects its production overhead expenditure to be as follows: Machining department Hand finishing department Fixed £ Variable £ 600 000 360 000 480 000 400 000 Question IM 3.8 Intermediate: Calculation of overhead absorption rates and under/overrecovery of overheads During the year it expects to make 200 000 units of its product.

This is expected to take 80 000 machine hours in the machining department and 120 000 labour hours in the hand finishing department.

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