DORCAPAT Company Ltd has three production departments, Assembly, Welding and Finishing, and two service departments, Maintenance and Quality Control. The following information is available about overhead costs. Total Assembly Welding Finishing Maintenance Quality Control Indirect labour cost Indirect materials Building rental Building Insurance Equipment insurance Heating and lighting Depreciation GHS 1,053,000 43,500 27,000 60,000 40,000 18,000 75,000 GHS 400,000 10,000 GHS 270,000 9,000 GHS 200,000 11,500 GHS 83,000 6,000 GHS 100,000 7,000 TOTAL 1,316,500 Additional Information: Total Assembly Welding Finishing Maintenance Quality Control Cost of plant/equipment (GHS) 750,000 250,000 200,000 150,000 100,000 50,000 Floor area (square metres) 1,800 500 400 350 250 300 Kilowatt hours (000s) 800 250 150 250 50 100 Direct Labour hours 18,000 6,000 7,000 5,000 Indirect labour and indirect material costs have been allocated directly to these five cost centres. The other overhead costs are shared among the cost centres. Depreciation is a charge for the use of items of plant and equipment such as machinery. Maintenance department renders 30%, 35%, 25% and 10% of its service to the Assembly, Welding, Finishing and Quality Control departments respectively. Quality control department renders its services to Assembly, Welding, Finishing and Maintenance departments in the ratio of 4:3:2:1 respectively. Overheads are absorbed on a direct labour hour basis for each production cost separately. Required: a. Determine the total overhead costs apportioned to each production cost center using repeated distribution and simultaneous equations me b. Establish the absorption rate for each production cost center.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
DORCAPAT Company Ltd has three production departments, Assembly, Welding and Finishing, and two service departments, Maintenance and Quality Control. The following information is available about overhead costs.
|
|
Total |
Assembly |
Welding |
Finishing |
Maintenance |
Quality Control |
|
Indirect labour cost Indirect materials Building rental Building Insurance Equipment insurance Heating and lighting Depreciation |
GHS
1,053,000
43,500
27,000
60,000
40,000
18,000
75,000 |
GHS
400,000
10,000 |
GHS
270,000
9,000 |
GHS
200,000
11,500 |
GHS
83,000
6,000 |
GHS
100,000
7,000 |
|
TOTAL |
1,316,500 |
|
|
|
|
|
Additional Information:
|
|
Total |
Assembly |
Welding |
Finishing |
Maintenance |
Quality Control |
|
Cost of plant/equipment (GHS) |
750,000 |
250,000 |
200,000 |
150,000 |
100,000 |
50,000 |
|
Floor area (square metres) |
1,800 |
500 |
400 |
350 |
250 |
300 |
|
Kilowatt hours (000s) |
800 |
250 |
150 |
250 |
50 |
100 |
|
Direct Labour hours |
18,000 |
6,000 |
7,000 |
5,000 |
|
|
Indirect labour and indirect material costs have been allocated directly to these five cost centres. The other overhead costs are shared among the cost centres.
Depreciation is a charge for the use of items of plant and equipment such as machinery.
Maintenance department renders 30%, 35%, 25% and 10% of its service to the Assembly, Welding, Finishing and Quality Control departments respectively. Quality control department renders its services to Assembly, Welding, Finishing and Maintenance departments in the ratio of 4:3:2:1 respectively.
Overheads are absorbed on a direct labour hour basis for each production cost separately.
Required:
- a. Determine the total overhead costs apportioned to each production cost center using repeated distribution and simultaneous equations me
b. Establish the absorption rate for each production cost center.
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