Mangament Accounting

Service Dept Y cost apportioned 20% 30% 50%
The first step is to assign an appropriate cost driver to the overheads so as to determine the appropriate departmental overhead rate, the following table summarises the appropriate cost drivers for the cost objects:
Overheads cost driver
1. Rent and rates floor area occupied
2. Machine insurance machine value
3. Telephone charges labour hours
4. Depreciation machine value
5. Production supervisor’s salaries labour hours
6. Heating and lighting labour hours
From the above table it is evident that the rent and rates will be charged to each department with reference to floor area, machine insurance cost will be charged using the machine value in each department, telephone charges, supervisor salaries and heat and lighting will be charged with reference to labour hours. We now determine the overhead rate in each department:
Rent and rates:
We determine the rent and rate allocation rate for each department, this will be determined by dividing the rent and rate cost by the total area and multiplying this with the area occupied by each department:
Rent and rates = 12,800
Floor area = 3,000 + 1,800 + 600 + 600 + 400 = 6400
Rent and rates allocation rate = 12,800/6400 = 2
Each department allocated rent and rate costs:
We determine the rent and rate cost for each department by multiplying the rent and rate allocation rate by the floor area for each department:
A
B
C
X
Y
Floor area occupied(sq metres)
3000
1800
600
600
400
Rent and rates allocation rate
2
2
2
2
2
Rent and…
For York furniture in the manufacture of job 123 and job 124 we apply the job order costing method, however we also note that there are three departments involved in the production of these products and therefore we have to determine the overhead rates in each department.
We consider the five department namely department A, department B, department C, service department X and service department Y as cost centres whereby products are assigned costs by the departments they pass through
The first step is to assign an appropriate cost driver to the overheads so as to determine the appropriate departmental overhead rate, the following table summarises the appropriate cost drivers for the cost objects:
From the above table it is evident that the rent and rates will be charged to each department with reference to floor area, machine insurance cost will be charged using the machine value in each department, telephone charges, supervisor salaries and heat and lighting will be charged with reference to labour hours. We now determine the overhead rate in each department:
We determine the rent and rate allocation rate for each department, this will be determined by dividing the rent and rate cost by the total area and multiplying this with the area occupied by each department:
The machine and insurance cost will be allocated using the machine value in each department, for this