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1. State the basis and reasons for charging overheads to individual production profit centres 2. Using the figuresin the tables above, an explanation of the basis of the overhead charges to the Home Cinema profit centre. 3. Using the figures in Document 4 above for illustration purposes,state the pro and cons of process of absorption costing.

1. State the basis and reasons for charging overheads to individual production profit centres 2. Using the figuresin the tables above, an explanation of the basis of the overhead charges to the Home Cinema profit centre. 3. Using the figures in Document 4 above for illustration purposes,state the pro and cons of process of absorption costing.

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter6: Activity-based, Variable, And Absorption Costing
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1. State the basis and reasons for charging overheads to individual production profit centres

2. Using the figuresin the tables above, an explanation of the basis of the overhead charges to the Home Cinema profit centre.

3. Using the figures in Document 4 above for illustration purposes,state the pro and cons of process of absorption costing.

Vardy Virtual Viewing Ltd's product costing team have provided you with the following information on the current method used to charge overhead costs to products. The table shows each overhead cost and the apportioned and reapportioned costs by profit centre together with the apportionment bases used. Desk and Profit centre Handheld laptop equipment equipment Maintenance Technology Home Information Cinema Total Direct materials (£) 3,336,573 3,813,226 2,383,267 9,533,066 0 3,813,226 O 13,346,292 Direct labour (£) 1,334,629 1,525,291 953,307 Direct costs 4,671,202 5,338,517 3,336,573 Overheads Indirect labour (direct labour) 192,675 220,200 137,625 550,500 Rent (floor area) 332,709 187,149 155,957 31,191 25,993 733,000 Machine insurance (machine value) 27,632 10,889 7,157 1,859 47,536 Heating (floor area) Machine power (machine hours) Machine depreciation (machine value) Total apportioned overhead costs 65,816 37,021 30,851 6,170 5,142 145,000 48,763 37,153 44,119 6,966 137,000 61,749 24,333 15,993 4,154 3,271 109,500 729,344 516,745 391,702 50,340 34,405 1,722,536 Re-apportion maintenance (machine hours) Re-apportion information technology (employees) Total re-apportioned overhead costs 18,878 14,383 17,080 -50,340 12,919 9,791 11,695 -34,405 761,140 540,919 420,477 O 1,722,536 Machine hours 21,000 16,000 19,000 Overhead absorption rate per machine hour (£) 36.24 33.81 22.13 The Home Cinema profit centre has been making significant losses in recent times and the Board of Directors have held discussions about whether this range of products is still viable or should be shut down. The manager of the Home Cinema profit centre has complained that a significant portion of the profit centre's costs are apportioned and reapportioned overheads. The manager has noted that the profit centre is charged a higher amount per machine hour (£36.24) for overheads than the other profit centres (£33.81 and £22.14). She has complained that she has no control over these costs and has queried the basis upon which the charges are made.
Transcribed Image Text:Vardy Virtual Viewing Ltd's product costing team have provided you with the following information on the current method used to charge overhead costs to products. The table shows each overhead cost and the apportioned and reapportioned costs by profit centre together with the apportionment bases used. Desk and Profit centre Handheld laptop equipment equipment Maintenance Technology Home Information Cinema Total Direct materials (£) 3,336,573 3,813,226 2,383,267 9,533,066 0 3,813,226 O 13,346,292 Direct labour (£) 1,334,629 1,525,291 953,307 Direct costs 4,671,202 5,338,517 3,336,573 Overheads Indirect labour (direct labour) 192,675 220,200 137,625 550,500 Rent (floor area) 332,709 187,149 155,957 31,191 25,993 733,000 Machine insurance (machine value) 27,632 10,889 7,157 1,859 47,536 Heating (floor area) Machine power (machine hours) Machine depreciation (machine value) Total apportioned overhead costs 65,816 37,021 30,851 6,170 5,142 145,000 48,763 37,153 44,119 6,966 137,000 61,749 24,333 15,993 4,154 3,271 109,500 729,344 516,745 391,702 50,340 34,405 1,722,536 Re-apportion maintenance (machine hours) Re-apportion information technology (employees) Total re-apportioned overhead costs 18,878 14,383 17,080 -50,340 12,919 9,791 11,695 -34,405 761,140 540,919 420,477 O 1,722,536 Machine hours 21,000 16,000 19,000 Overhead absorption rate per machine hour (£) 36.24 33.81 22.13 The Home Cinema profit centre has been making significant losses in recent times and the Board of Directors have held discussions about whether this range of products is still viable or should be shut down. The manager of the Home Cinema profit centre has complained that a significant portion of the profit centre's costs are apportioned and reapportioned overheads. The manager has noted that the profit centre is charged a higher amount per machine hour (£36.24) for overheads than the other profit centres (£33.81 and £22.14). She has complained that she has no control over these costs and has queried the basis upon which the charges are made.
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