Calculation of budgeted overhead rates / cost per product

Facts: Hoi Anh Shoes Company (HASC) is manufacturing shoes made

from fine leather in two production departments, a leather cutting shop, and
a manual finishing line. In the cutting shop most of the production will be
done by automated cutting machines; however, some steps in the
production must be done manually in the finishing line. Three types of
shoes are being produced (Shoes for men, women, and kids). HASC also
maintains two more departments, a canteen, and a maintenance shop. In the
table below, you will find next year’s budgeted production data and
manufacturing costs for the company. It has been estimated that
approximately 50% of the repair shop’s costs are incurred for the cutting
shop and the remainder is related to the finishing line. All employees
including those of the canteen are invited to eat in the canteen for free. no use space

Required:

1. Allocate the various costs to the cost centers and re-allocate the costs to
production centers if necessary.
2. Calculate the following budgeted overhead absorption rates:
a) An hourly rate for the cutting shop in £ per hour of the cutting
machines.
b) A rate expressed as a percentage of direct wages for the finishing line.
3. Calculate the absorbed overheads by:
a) production cost centers, and
b) by products.
4. Calculate the cost of the three products per unit (Pair of shoes).

All workings and assumptions should be clearly shown. Interim

calculations should be rounded to one full pound (£1), so you should
ignore digits after the decimal point. The overhead absorption rates should
be rounded to 2 digits after the decimal point.

Solution:
Please use the information and the forms on the next pages for the
necessary calculations and explanations. Please insert the correct headings,
if necessary.
Basic cost information:
Dimension Men Women Kids
shoes shoes shoes
Production Unit = 1 pair 300,000 400,000 200,000

Direct material £ per unit 8 12 7

Direct labour:
Cooking Shop £ per unit 1 2 4
Finishing Line £ per unit 5 6 7
Hours in Cutting Shop h per unit 0,1 0,12 0,11
Cutting Finishing Maintenance
Dimension Canteen Total
Budgeted overheads Shop Line Shop
General overheads £ 500,000 640,000 150,000 280,000 1,570,000
Rent, heat and light £ 600,0000
Depreciation/insurance of
equipment £ 800,0000
2,970,000

Cutting Finishing Maintenance

Dimension Canteen Total
Shop Line Shop
Additional data

Gross book value of

equipment £ 100,000 40,000 100,000 120,000 360,0000
Employees Number 80 100 15 30 2255
Floor space occupied Square meters 8,000 6,000 500 2,000 16,5000

Allocation of cost centers / Reallocation:

Allocation base Cutting Finishing Maintenance
Canteen Total
used ??? Shop Line Shop
General overheads £ 500.000 640.000 150.000 280.000 1.570.000
Rent, heat and light £ 600,000
Depreciation/insurance of
equipment £
£
£
Total budgeted overheads

Please insert the allocation bases you used for the allocation/reallocation in the table
above!
Calculation of absorption bases
by production cost centers:
Cutting Shop Finishing Line
Hours in Total
Budgeted Cutting Cutting
production Shop per shop Direct labour Total direct
Product (units) unit hours cost per unit wages

Calculation of budgeted overhead

absorption rates:
Cutting Finishing
Shop Line
Overheads
(be specific)
Absorbtion base
(be specific)

Specify name
of absorption rate:

Calculation of absorption
by products:
Cutting Shop Finishing Line
Over-
Total Overheads Total head Overheads
Product hours £ per hour absorbed wages rate % absorbed
Calculation of product cost
(ignore rounding)

Men Women Kids

Before distribution shoes shoes shoes Total
Production quantity (units)
Direct material: per unit
Cutting shop Direct labour: per unit
Finishing line Direct labour: per unit
General overheads
Rent, heat and light
Depr. and insurance of equipment
Total cost

Men Women Kids

After distribution shoes shoes shoes Total
Direct material: cost in £
Cutting shop Direct labour: cost in £
Finishing Direct labour: cost in £
General overheads cost in £
Rent, heat and light cost in £
Depriciation and insurance of
equipment cost in £
Total cost

Number of units
Cost per unit