BCD ltd manufactures office and household furniture to customers specifications. Because of the specialized nature of the manufacturing process, each job is treated separately for costing pu
accounting writing question
BCD ltd manufactures office and household furniture to customers specifications. Because of the specialized nature of the manufacturing process, each job is treated separately for costing purposes. There are two stages in the manufacture of each item namely, Assembly and Finishing. In the assembly department, overheads are absorbed on the basis of prime cost incurred in that department. In the finishing department, overheads are applied on the basis of total accumulated cost on the job in both the two stages inclusive of overhead absorbed in assembly. The selling price of the item is then determined by applying the usual 40% profit margin.
The following information is provided about budgeted data for the next financial period:
Labour cost ksh180,000120,000
a) Calculate the overhead absorption rates for each production process.
b) Job no. 148 shows the following data concerning its production:
Labour cost shs.2,7001,600
Prepare the cost statement for this job and indicate the proposed final selling price.
c) The following data relates to the actual manufacturing operations as accumulated for the whole financial period:
Overhead incurred shs.660,000450,000
Labour cost shs.200,000135,000
Calculate the amount of overhead over applied or under applied for the company as a whole.
d) Comment on the overhead absorption rates used by the company in light of the results obtained in (c) above.
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