Taj Co has three main departments – Casting, Dressing and Assembly – and for period 2 has prepared the following overhead budgets for an output level of 110,000 units. Department Casting Dressing Assembly Production overheads K229,000 K175,000 K93,000 Expected production hours 7,950 7,280 6,200 During period 2, actual results were as follows for an output level of 117,500 units. Department Casting Dressing Assembly Production overheads k229,317 K182,875 K94,395 Production hours 7,950 7,280 6,696 Required Calculate predetermined departmental overhead absorption rates for period 2 and the under/over absorption of overheads for each department for period 2. Suggest possible reasons for the value of under/over absorbed overheads you have calculated for period 2. Under/Over absorbed overheads could be avoided by the use of actual overhead rates rather than pre-determined absorption rates. Explain why absorption rates are calculated in advance for the period, despite the resulting under/over absorption.
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.
Taj Co has three main departments – Casting, Dressing and Assembly – and for period 2 has prepared the following overhead budgets for an output level of 110,000 units.
Department Casting Dressing Assembly
Production
Expected production hours 7,950 7,280 6,200
During period 2, actual results were as follows for an output level of 117,500 units.
Department Casting Dressing Assembly
Production overheads k229,317 K182,875 K94,395
Production hours 7,950 7,280 6,696
Required
- Calculate predetermined departmental overhead absorption rates for period 2 and the under/over absorption of overheads for each department for period 2.
- Suggest possible reasons for the value of under/over absorbed overheads you have calculated for period 2.
- Under/Over absorbed overheads could be avoided by the use of actual overhead rates rather than pre-determined absorption rates. Explain why absorption rates are calculated in advance for the period, despite the resulting under/over absorption.
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