Lewitt PLC has asked for your help in designing their new costing system.

Question 3

Lewitt PLC has asked for your help in designing their new costing system. You have

ascertained that they have two direct production departments: manufacturing and finishing,

and two production overhead departments: stores and canteen.

The allocated costs in the period are budgeted to be:

Manufacturing £360,000 Stores £120,000

Finishing £320,000 Canteen £30,000

Costs to be apportioned:

Rent on basis of floor area £26,000

Machine depreciation on basis of original cost of machinery £60,000

Management time on basis of time spent in each dept. £120,000

Floor Area Machinery Management

Sq mtrs Original cost Time

Manufacturing 300 £450,000 48%

Finishing 100 £30,000 32%

Stores 50 £5,000 5%

Canteen 70 £15,000 15%

Stores Number of

Requisitions Employees

Manufacturing 150 35

Finishing 10 25

Stores N/A N/A

Canteen 40 N/A

Budgeted machine hours in manufacturing department is 25,183

Budgeted direct labour hours in finishing department is 27,095

Required:

Calculate the overhead absorption rate for the manufacturing and finishing departments