CONFIDENTIAL FPT/JAN2021/ACC116

INTRODUCTION TO COST ACCOUNTING (ACC116)

GROUP ASSIGNMENT (20%)
CHAPTER 4: OVERHEAD
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CLASS : DBS 2A
LECTURER’S NAME : PUAN FARHANA YUSOF
GROUP :

NO. STUDENT’S ID STUDENT’S NAME

1 2020189497 NURUL AZLIN BINTI AZMAN

2 2020502385 NUR ANIS SYUHADAH BINTI MOHD YUSOP

Marks

1. Overhead Concept

2. Calculation Errors

3. Explanation & Organization

Overall assessment (total marks)

Please submit the cover and answer (in Microsoft Word or Excel only) for group
assignment in Google Classroom (one group only one person submit) before 14 January
2021.

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GROUP ASSIGNMENT ACC116 – JAN2021

ALL questions are compulsory and MUST be attempted.

A) i) Briefly explain the terms below:

- Cost centre

A cost centre is a department within a business to which costs can be allocated. The term
includes departments which do not produce directly but incur costs to the business, when
the manager and employees of the cost centre are not accountable for the profitability and
investment decisions of the business but they are responsible for some of its costs. Cost
centre can be classified into three types as follows is process cost centre where is a
specific process or a continuous sequence of operation is performed. Example of this is a
food processing company would have the mixing, cooking, sterilizing, and packing
departments. Next types is production cost centre where is the production activity is
performed. Example of this is a furniture manufacturing company would have the
machine, assembly and finishing department. Last but not least the types is service cost
centre where is services are provided to other cost centres. Example of this is the
personnel department or the canteen.

- Cost allocation

Cost allocation is the process of identifying, aggregating, and assigning costs to cost
objects. A cost object is any activity or item for which you want to separately measure
costs. Examples of cost objects are a product, a research project, a customer, a sales
region, and a department. Cost allocation is used for financial reporting purposes, to
spread costs among departments or inventory items. Cost allocation is also used in
the calculation of profitability at the department or subsidiary level, which in turn may
be used as the basis for bonuses or the funding of additional activities. Cost
allocations can also be used in the derivation of transfer prices between subsidiaries.
Example of this is a the African Bongo Corporation (ABC) runs its own electrical
power station in the hinterlands of South Africa, and allocates the cost of the power
station to its six operating departments based on their electricity usage levels.

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- Cost apportionment

Cost apportionment when the cost items cannot be accurately allocated to a particular
cost centre, then such items of cost are pro-rated amongst various cost objects, on an
equitable basis. This is known as cost apportionment. It is the distribution of different cost
items in proportions to the cost unit or cost centre on a suitable basis

- Cost re-apportionment

Cost re-apportionment is the service departments render service (benefit) to the

production departments. In ascertainment of production departments cost the expenses of
service departments are to be reapportioned amongst production departments only. This
process of redistribution of service departments cost to production departments is called
‘secondary distribution’ of overheads. It means re-distribution of service cost centres’
overheads to production cost centres on some suitable basis/method because, the
overheads are finally recovered through the production cost centres only. The method of
re-apportionment used is direct method where is the simplest method and is ideal to use
when service departments provide services to production departments, but not to each
other and the next method is repeated method is a technique in which costs of each
service departments are repeatedly allocated to other departments according to the given
percentages until the balance left in service departments reaches zero.

ii) Why is the process of cost apportionment carried out?

The process of cost apportionment carried out is because common costs are shared
among cost centres.

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B) Happiness Berhad is a manufacturing company operating with two (2)

production departments; Machining and Assembly and two (2) service
departments; Maintenance and Store. Machining department is highly
dependent on the use of machine, while Assembly department relies on
its labour force. The following budgeted cost was extracted for the month
of March 2020:

Total Machining Assembly Maintenance Store

(RM) (RM) (RM) (RM) (RM)
Indirect materials 14,700 4,900 5,900 2,400 1,500
Indirect wages 22,300 5,500 8,700 4,600 3,500
Lighting 14,000
Power expenses 6,500
Depreciation on machines 5,150

Other available information was:

Total Machining Assembly Maintenance Store

Value of 93,000 50,000 35,000 3,000 5,000
machines (RM)
Horse power of 4,350 3,500 500 100 250
machines
Light points 500 200 150 100 50

Number of store 220 70 110 40 -

requisitions
Maintenance 300 195 105 - -
hour
Machine hours 3,550 2,500 1,050 - -

Direct labour 4,100 1,100 3,000 - -

hours

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Required:

i) Prepare the overhead analysis sheet of Happiness Berhad, showing clearly the apportionment and
reapportionment of the overheads. (Round up to the nearest RM)

ii) Calculate the overhead absorption rate for Machining and Assembly Departments.

iii) The actual information for the overhead cost and other activities are as follows:

Machining Assembly
Total overheads (RM) 44,500 20,500
Direct labour hours 2,000 2,500
Machine hours 3,000 1,500

a) Compute and explain the over-absorption or under-absorption of overheads for production department Machining.
(Round up to the nearest RM).

b) Compute and explain the over-absorption or under-absorption of overheads for production department Assembly.
(Round up to the nearest RM).

End of questions

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ANSWERS B (i) :

OVERHEAD ANALYSIS SHEET OF HAPPINESS BERHAD

BASIS OF TOTAL
OVERHEAD MACHINING (RM) ASSEMBLY (RM) MAINTENANCE (RM) STORE (RM)
APPORTIONMENT (RM)
Indirect
Direct Allocation 14700 4900 5900 2400 1500
Material
Indirect
Direct Allocation 22300 5500 8700 4600 3500
Wages
Lighting Light Points 14000 14000 x 200/500 = 5600 14000 x 150/500 = 4200 14000 x 100/500 = 2800 14000 x 50/500 = 1400
Power Horse Power of
6500 6500 x 3500/4350 = 5230 6500 x 500/4350 = 747 6500 x 100/4350 = 149 6500 x 250/4350 = 374
Expenses Machines
Depreciation
Value of Machines 5150 5150 x 50000/93000 = 2769 5150 x 35000/93000 = 1938 5150 x 3000/93000 = 166 5150 x 5000/93000 = 277
on Machines
Total OH 62650 23999 21485 10115 7051

RE-APPORTIONMENT
Maintenance Maintenance Hours 10115 x 195/300 = 6575 10115 x 105/300 = 3540 -10115 -

Number of Store
Store 7051 x 70/220 = 2244 7051 x 110/220 = 3526 7051 x 40/220 = 1282 -7051
Requisitions

Maintenance Maintenance Hours 1282 x 195/300 = 833 1282 x 105/300 = 449 -1282 -

Total OH (R) 33651 29000 0 0

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(ii)

OAR Machining = Total OH

Total Machine Hour

= 33651
2500

= 13.46 / MH

OAR Assembly = Total OH

Total Direct Labour

= 29000
3000

= 9.67 DLH

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(iii) (a) Calculation of over / under absorption

Department Machining

Actual Overhead
44500
(amount incurred)

Overhead Absorbed RM 13.46 X 3000 hours

(budgeted) = RM 40380

44500 – 40380 = RM 4120

Under Absorption. It is because department machining spending less or perform less. Also change in proportion of work by
machine and labour. The proportion of different types of work may change. For example if there is more machine work and less
manual work than was formerly the case, there will be under-recovery of expenses, if the recovery is on the basis of a percentage
on direct wages.

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(b)

Department Assembly

Actual Overhead
20500
(amount incurred)

Overhead Absorbed RM 9.67 X 2500 hours

(budgeted) = RM 24175

20500 - 24175 = (RM 3675)

Over Absorption. It is because more activity than budgeted. Another reason is Seasonal Fluctuation in Overhead. Due to seasonal
nature of work, overhead may fluctuate from one period to another. Also, Over Utilisation of Capacity is the main reason why
department assembly had over absorption.

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