MZUMBE UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

ACC 215/271 COST AND MANAGEMENT ACCOUNTING
OVERHEAD COST TUTORIAL QUESTIONS
DISCUSSION QUESTIONS
1. Why do indirect costs need to be apportioned to products?
2. Discuss what blanket rate is. In what situation blanket rate is applicable.
3. Distinguish between cost allocation and cost apportionment.
4. Explain method of reapportionment of service department cost.
5. What is the different between allocation and apportionment of overhead

TUTORIAL QUESTIONS
QUESTION ONE
Lisaraha Ltd has two production cost centers (Assembly and Finishing) and two
production service cost centers (Maintenance and Canteen).
The following are budgeted costs for the next period:
Indirect materials TZS 20,000
Rent TZS 15,000
Electricity TZS 10,000
Machine depreciation TZS 5,000
Indirect labor TZS 16,520
The following information is available
Assembly Finishing Maintenance Canteen Total
Area (sq 1,000 2,000 500 500 4,000
metres)
kW hours 2,750 4,500 1,975 775 10,000
consumed
Machine 45,000 35,000 11,000 9,000 100,000
value(TZS)
Staff 18 30 12 2 62
Direct 3,175 3,800 – – 6,975
labour
hours
Indirect 7,000 8,000 3,000 2,000 20,000
materials
budget(TZS)
Indirect 1,600 2,220 11,200 1,500 16,520
labour
budget(TZS)
Required: Complete the extract from the overhead analysis sheet shown below
QUESTION TWO
Marambau Ltd (ML) is a manufacturing company producing Product P, which
has the following cost card.
 TZS
Direct labor 2 hrs @ TZS5 per hour 10
Direct materials 1 kg @ TZS5 per kg 5
Direct expenses 1
Prime cost 16
ML produces and sells 1,000 units in a month. ML absorbed overheads based
on the number of units produced. Based on experience, ML estimates its
monthly overheads will be as follows.
Overheads TZS
Heating 3,000
Power 2000
Maintenance 500
Total 5,500
Required: Calculate the total cost of one unit of product P

QUESTION THREE
Kishimbe Ltd makes three products A, B and C. Each passes through two cost
centers: Machining and Assembly.
Budgeted production in each cost centre by each product
Units Machining Assembly
Product A 1,000 1 hr 1 hr
Product B 2,000 2 hrs 1/2 hr
Product C 500 None 4 hrs
Overheads are budgeted as follows: Machining Assembly
TZS100,000 TZS150,000
Required
(a) Calculate the OAR per hour for each cost centre and the overall blanket
OAR per hour.
(b) Calculate the overhead absorbed by Product B based on the individual
cost centre OAR per hour

QUESTION FOUR
The following data relate to Lola Ltd for Period 8.
A Budget Actual
Overheads TZS80,000 TZS90,000
Labor hours worked 20,000 22,000
Required
Calculate the under or over absorption of overheads
ABC Ltd is preparing its departmental budgets and product cost estimates for
the year ending 31 December 2015. The company has three manufacturing
departments - Machining, Assembly and Finishing - together with a production
maintenance department.

The following costs and related data have been estimated for the year to 31
December 2015:

Machining Assembly Finishing Maintenance Total

Costs
TZS('000) TZS('000) TZS('000) TZS('000) TZS('000)
Direct wages 60 32 72 - 164
Indirect 10 6 8 30 54
wages
Direct 80 10 4 - 92
materials
Indirect 15 4 8 20 47
materials
Power 102
Light and 10
heat
Depreciation 7
Rent and 25
rates
Personnel 63

Other data:
Direct labour hours 12000 8000 16000 6000 42000
Machine hours 40000 5000 6000 - 51000
Employees 6 4 8 3 21
Floor area (m2) 1000 400 300 300 2000
Net book value (NBV) of non- 20000 8000 3000 4000 35000
current assets

The maintenance department is expected to spend 60% of its time working for
the machining department with the remainder of its time being shared equally
between assembly and finishing.

You are required:

a) to prepare an overhead analysis sheet for ABC Ltd for its year ending 31
December 2015;
b) to calculate appropriate overhead absorption rates for the machining,
assembly and finishing departments.
c) to prepare a cost estimate, based on the following data, for a product
which is to be manufactured in January 2015
 Machining Assembly Finishing
Direct materials 2500 400 200
(Shs.)
Direct labour 800 350 140
hours
Machine hours 1400 100 80