This could be done by dividing the total number of

‘This could be done by dividing the total number of all units actually produced during
the month into the actual overheads incurred.’
Critically examine the producti on directors’ suggestion.
Question 9 (not relevant to this course)
Question 10
The Small Manufacturing Company Ltd. has three production and three service departments.
The primary analysis work relating to factory overhead expenses (such as power, rent and rates
etc.) has already been done on the overhead analysis sheet which is in preparation for the
imminently commencing financial year. This ‘half way’ stage on the sheet yields the following
sub-totals for each department;
Service dept 1 3,800
2 4,500
3 5,300
Production dept A 20,800
B 15,200
C 11,400
61,000
It is now necessary to complete the sheet and compute predetermined direct labour hour
absorption rates to be used for the year ahead. A technical assessment for apportioning the costs
of the service departments (reduced to percentage terms) gives the following figures:
Dept 1 2 3 A B C
1 - 9 6 38 27
2 10 - 5 34 29
3
7 11 - 40 24
TOTAL
20 100
22 100
18 100

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The direct labour hours are: Dept A Dept B Dept C
8,000 5,000 5,500
Requirement
Show the remaining work to be done on the overhead analysis sheet under the following two
methods of handling the reciprocal service departments ’ problem.
(a) Ignoring the fact that the service departments do work for each other (direct method).
(b) Not ignoring the inter service department work dimension as in (a) but instead using the
more comprehensive method known as “repeated distribution”.
(c) Give your opinion on upside and downside of the second method vis-vis the first and whether
method (b) is usually worthwhile doing when there is a reciprocal service department situation.
Question 11
Zintech engineering company plc produces customised products to customer requirements in
two production departments, a machine department and an assembly department. Its budgeted
profit statement for the present (and now progressing) financial year to 31
st
Dec 20X7 is as
follows:
€ € €
Sales 6,150,000
Less production cost of sales
Direct Material 1,820,000
Direct Labour
-Machine department (14,000 hrs.) 690,000
-Assembly department (41,000 hrs.) 391,000 1,081,000
Production Overhead
- Machine department (45,000 machine hrs) 710,000
- Assembly department (zero machine hours) 240,000 950,000 3,851,000
Gross Margin 2,299,000
Less non-manufacturing overheads
Administration 641,000
S elling and Distribution 927,000 1,568,000
Net Profit 731,000

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The following details relate to a particular job number 68B begun and completed during April