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ABC Ltd applies factory overhead in its two production departments using a predetermined rate based on budgeted machine hours in the Cutting Department and based on budgeted labour hours in the Machining Department. Variable canteen costs are allocated to the production departments based on budgeted number of employees, and fixed costs are allocated based on the capacity number of employees. Variable maintenance costs are allocated on the budgeted number of direct labour hours. and fixed costs are allocated on labour hour capacity. Details relating to next year’s operations are given below: Service Production Budgeted costs (£) Canteen Maintenance Cutting Machining Variable costs 40,000 90,000 200,000 300,000 Fixed costs 30,000 30,000 100,000 120,000 Other data: Direct labour hours (capacity) 10,000 20.000 + Direct labour hours (budgeted) 9,000 18,000 Number of employees (capacity) 40 80 Number of employees (budgeted) 30 50 Machine hours (capacity) 30,000 60,000 Machine hours (budgeted) 18,250 50,000 + Required a. Prepare a schedule showing the allocation of budgeted service department costs to production departments. In your answer, ensure that you show variable and fixed costs allocated from each service department, and total costs of each production department to be used for the calculation of overhead rates. (24 marks) b. Determine the predetermined overhead rates for each production department. (3 marks)
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