University of the West Indies

Introduction to Cost and Management Accounting

- 1 -
UNIVERSITY OF THE WEST INDIES
Mona Campus
ACCT 1003 - INTRO. TO COST & MANAGEMENT ACCOUNTING
Worksheet #3- Manufacturing Overhead
Selected solutions

Lecture Questions

Question 1
i) Dept. A $6.00/labour hour
ii) Dept. B $4.50/machine hour
iii) Dept. A $15,000 under-applied
Dept. B $17,500 over-applied

Question 2
i) Overheads Applied = OAR x # of machine hours
# of machine hours used = $405,000/ $40 = 10,125

ii) Manufacturing overheads was under-allocated.
Under-allocated overhead is $25,250

iii) Journal Entries
Dr COGS $25,250
Cr Manufacturing Overhead $25,250

Question 3
a) PD 1 $12.000/machine hour
PD 2 $10.000/DLH
PD 3 0.60 or 60% of DLC

b) PD 1 $80,000 over-applied
PD 2 $$85,500 under-applied
PD 3 $$20,000 over-applied

Tutorial Questions
Question 1
i) OAR = $(12,000 + 42,000 + 23,000 + 48,000 + 85,000)/28,000 machine hours
= $210,000/28,000 machine hours
= $7.50/machine hour

ii) Allocated manufacturing overhead = 32,800 @ $7.50
= $246,000




University of the West Indies
Introduction to Cost and Management Accounting

- 2 -
Manufacturing Overhead A/C
Maintenance Labour
Plant Supervisors salary
Screw, nails & glue
Plant utilities
Depreciation

$22,500
44,000
41,000
90,850
81,000
279,350
WIP



TO COGS
$246,000



33,350
279,350

Question 2
Part i
COST Basis of
Apportionment
Dept.1 Dept.2 Maintenance Canteen

Indirect labour
Consumables
Heat & Light
Rent & Rates
Depreciation
Supervision
Power
Re-apportionment:-
Canteen
Maintenance
Total Budgeted O/Hs

Allocation
Allocation
Floor Area
Floor Area
BV of Machinery
# of Employees
Kilowatt

# of Employees
Service Hours
$
60,000
12,000
4,000
6,000
15,000
12,000
9,000

15,000
25,000
158,000
$
70,000
16,000
4,800
7,200
12,000
9,000
8,000

11,250
18,750
157,000
$
25,000
3,000
2,000
3,000
2,000
3,000
2,000

3,750
(43,750)
$
15,000
10,000
1,200
1,800
1,000
-
1,000

(30,000)

Part ii
Calculating OARs

Dept. 1 $158,000/ 6,320 machine hours
$25/machine hour

Dept. 2 $157,000/ 7,850 labour hours
$20/labour hour

Part iii
Calculating Overhead Variances

Overheads Applied Actual Costs
Incurred
Variance
Department 1
Department 2
$150,000 (6,000 @ $25)
$158,000 (7,900 @ $20)
$155,000
$156,000
$5,000 under-
applied
$2,000 over-applied

University of the West Indies
Introduction to Cost and Management Accounting

- 3 -
Question 3
Part a
COST Accommodation Catering Leisure Outings Total

Labour
Materials
Power (kwh)
Rent & Rates (Floor Area)
Depreciation (MV value)
Advertising
Sub-totals
Office Expenses (Sub-
totals)
Total Budgeted Costs
$
110,000
19,000
20,000
36,000
5,000
30,000
220,000
80,000
300,000
$
100,500
36,000
10,000
12,000
10,000
24,000
192,500
70,000
262,500
$
35,000
16,000
50,000
18,000
30,000
16,000
165,000
60,000
225,000
$
38,500
13,000
4,000
6,000
15,000
6,000
82,500
30,000
112,500
$
284,000
84,000
84,000
72,000
60,000
76,000
660,000
240,000
900,000
Calculating cost per customer per day
Accommodation = $300,000/15,000 cud = $20/cud
Catering = $262,500/12,000 cud =$21.875/cud
Leisure = $225,000/8,000 cud =$28.125/cud
Outings = $112,500/3,000 cud =$37.50/cud
Part b

Cost per person = (7 @ $20) + (7 @ $21.875) + (3 @ $28.125) + (3 @ $37.50)
= $490

Margin = 30% Mark-up = 3/7
SP = Cost + Mark-up
SP = $490 + (3/7 of $490)
SP = $490 + $210
SP = $700
Hence price for couple is $1,400

OR

Cost = SP Profit Margin
$490 = SP 0.30SP
SP = $490/0.70
SP = $700
Hence price for couple is $1,400

Part c
Accommodation $15,000 under-applied
Catering $9,375 over-applied
Leisure $8,750 under-applied
Outings $5,000 under-applied