Paying Rent Helen £ Alice £ Khalid £ Tim £ Rent based on Room Size Rent based on Gross Income...

Paying Rent

Helen £

Alice £

Khalid

£Tim £

Rent based on Room Size Rent based on Gross Income

Rent based on Disposable Income

Draw this table in your notebooks

Flatmates

Helen, Tim, Alice and Khalidare moving into their new flat.

The rent is £1800 per monthWhich works out at £450 each

£450 each - that

seems fair!

HoweverOne flatmate, who has the smallest room, doesn’t think it’s fair that they have to pay the same rent as the other flatmates, who have bigger rooms.

That’s not fair!

Calculate the area of each room to see how big the rooms

are

KhalidThe red room

3m x 5m

AliceThe green room

4.8m x 3m

TimThe orange room

4.4m x 4.5m

HelenThe blue room

2.7m x 4m

To work out the area of the room multiply the 2 measurements together

Top Tip!

Total bedroom area = 60 m²Total rent is £1800

KhalidThe red room

3m x 5m = 15m²

AliceThe green room

4.8m x 3m = 14.4m²

TimThe orange room4.4m x 4.5m =

19.8m²

HelenThe blue room

2.7m x 4m = 10.8m²18%

24%

25%

33%

£324

£432

£450

£594

Apportionment! (based on room size)

Oh no it isn’t!

One flatmate, who is a student and only works part time doesn’t think it’s fair that they have to pay the same rent as the other flatmates, who all have full time jobs.

Great! That’s sorted.

So not fair!

Calculate the flatmates monthly income

Khalid£20000 p/a

Alice£6000 p/a

Tim£25000 p/a

Helen£15000 p/a

Top Tip!

To work out the monthly income divide the annual earnings by 12 (months)

Total monthly income = £5500Total rent is £1800

Khalid£1667 p/m

Alice£500 p/m

Tim£2083 p/m

Helen£1250 p/m

9%

23%

30%

38%

£162

£414

£540

£684

Apportionment! (based on income)

At least that’s

sorted out now!

Oh no it isn’t!

One flatmate, who has to pay back their credit card debt doesn’t think it’s fair that they have to pay the same rent as the other flatmates, who don’t have as many debts and have more disposable income.

No - that’s not fair!

Calculate the monthly disposable income

Khalid£120

Alice£60

Tim£150

Helen£500

Top Tip!

Disposable income is the income you have left after paying all you bills

Total monthly disposable income= £830Total rent is £1800

Khalid£120 p/m

Alice£ 60 p/m

Tim£ 150 p/m

Helen£500 p/m

7%

15%

18%

60%

£126

£125

£324

£1080

Apportionment! (based on disposable

income)

Flatmates

The flatmates cannot agree on how to share out the rent, which do you think is

the fairest way?

AAT Level 3Absorption Costing & Accounting for

Overheads

Assessment Criteria3.1S Attribute overhead costs to production and service cost centres in

accordance with agreed bases of allocation and apportionment: Direct Step down

3.2S Calculate overhead absorption rates in accordance with suitable bases of absorption:

Machine hours Labour hours

3.3S Make adjustments for under or over recovered overhead costs in accordance with established procedures

3.4S Review methods of allocation, apportionment and absorption at regular intervals, implementing agreed changes to methods

3.5S Communicate with relevant staff to resolve any queries in overhead cost data

Cost Card

Direct Materials+Direct Labour+Direct Expenses

= PRIME COST+ Production Overheads

= PRODUCTION COST+ Non Production Overheads

= TOTAL COST

Overheads

Usually classified by function /cost

centres

Production Cost Centre

Service Cost Centre

Absorption Costing

Production (Machinin

g)Production (Packagin

g)

Inventory Stores

Staff Canteen

Site Maintena

nce

Customer

Services

What process do we use to share out

the overheads

costsequitably?

Heating

1. ALLOCATION - of overhead costs that are directly

incurred by particular cost centres / responsibility centres

2. APPORTION - (i.e. divide) all shared overheads between the production and service cost centres / responsibility centres

3. REAPPORTION - all service cost centre overheads to the production cost centres (responsibility centres)

4. ABSORB - the allocated and apportioned overheads into the costs of production of cost units.

Absorption Costing – the 4 steps

1. ALLOCATION - of overhead costs that are directly

incurred by particular cost centres / responsibility centres

Production

Canteen Warehouse

Rent of the warehouse

Canteen workers wages

Production supervisor’s salary

Repairs to the warehouse

Maintenance cost of the ovens in the canteen

X

X

X

X

X

Check out the centres

first!


Rent and ratesHeating and LightingPersonnel costs

Buildings insuranceMachinery and equipment insuranceDepreciation (plant, machinery and tools)MaintenanceSupervisory costs

Staff canteenAdministration


Rent and rates Floor area of cost centresHeating and LightingPersonnel costs




Rent and rates Floor area of cost centresHeating and Lighting

Floor area or volume of space occupied

Personnel costs






Personnel costs Number of staff employed by each cost centre







Buildings insurance Floor area or book value of buildings occupied

Machinery and equipment insuranceDepreciation (plant, machinery and tools)MaintenanceSupervisory costs







Machinery and equipment insurance

Book value of machinery/equipment in each cost centre

Depreciation (plant, machinery and tools)MaintenanceSupervisory costs









Depreciation (plant, machinery and tools)

Book value of assets in each cost centre

MaintenanceSupervisory costs











Maintenance Book value of assets in each cost centreSupervisory costs











Maintenance Book value of assets in each cost centreSupervisory costs Number of staff, or hours worked by

supervisor in each cost centre













Staff canteen Number of staff employed in each cost centre

Administration












Staff canteen Number of staff employed in each cost centre

Administration Number of staff employed or direct labour cost of each cost centre

Denton LtdSee question sheet

OverheadsHeating £10,000Supervisor Wages£40,000Equipment £20,000

Four Cost Centres1. Cutting 2. Assembly

3. Canteen 4. Maintenance

Production cost centres

Service cost centres

Cutting Assembly Canteen

Maintenance

Total

Floor area 25m2 200m2 100m2 75m2

Staff employed

15 30 2 3

Book value of equipment

£50,000 £135,000 £10,000

£5,000

Calculate the totals

Cutting Assembly Canteen

Maintenance

Total

Floor area 25m2 200m2 100m2 75m2 400m2

Staff employed

15 30 2 3 50

Book value of equipment

£50,000 £135,000 £10,000

£5,000 200,000

Calculate the totals

FA 400sqm Staff 50 BV £200,000

Overhead Basis Totals£

Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

70,000

Heating cost £10,000 for 400sqm, £25 per sqm



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Cutting25sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000




Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Assembly 200sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Assembly 200sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000




Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Canteen 100sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000 2500

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Canteen 100sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000 2500

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000




Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000 2500

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Maint 75sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000 2500 1875

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000


Maint 75sqm x £25



Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000 2500 1875

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000




Cutting£

Assembly£

Canteen£

Maint.£

Heating

Floor Area

10,000 625 5000 2500 1875

Supervisory

StaffNumbe

r

40,000

Insurance

Book Value

20,000

Total

90,000

Heating cost £10,000 for 400sqm, £25 per sqm Now try Supervisor &

Insurance costs

Answer on next slide

Question 1 - Denton Answer

3. REAPPORTION - all service cost centre overheads to the production cost centres (responsibility centres)

Stepped MethodDirect Method

Service CentresDO NOT

support each other

Service CentresDO

support each other

3. REAPPORTION - Step Down Method – Denton Ltd (3a)


Cutting£

Assembly£

Canteen£

Maint£

Heating Floor area

10000 625 5000 2500 1875

Supervisory No. emps.

40000 12000 24000 1600 2400

Insurance Book value

20000 5000 13500 1000 500

Total 70000 17625 42500 5100 4775Canteeno/head apportioned

Sub total Maintenance o/heads apportionedTotalo/heads apportioned

(5100)

0 1594 3187 319Staff No

70000

19219

45687

0 5094

Hours 0 2547 2547 0 (5094)

70000

21766

48234

0 0

3. REAPPORTION - Direct – Denton Ltd (3b)


Cutting£

Assembly£

Canteen£

Maint£

Heating Floor area

10000 625 5000 2500 1875

Supervisory No. emps.

40000 12000 24000 1600 2400

Insurance Book value

20000 5000 13500 1000 500

Total 70000 17625 42500 5100 4775Canteeno/head apportioned

Sub total Maintenance o/heads apportionedTotalo/heads apportioned

(5100)

0 1700 3400Staff No

70000

19325

45900

0 4775

Hours 0 2387 2388 (4775)

70000

21712

48288

0 0

Absorption Costing

Direct MaterialsDirect LabourDirect Expenses

Indirect MaterialsIndirect LabourIndirect Expenses

Direct Costs Indirect Costs

Prime Cost Overhead Costs

Can be identified with a single

product

Cannot be identified with a single product

Both types of cost must be covered from the sales revenue of the units made

Total Production Costs + Profit = Selling price

Accounting for Overheads

Usually Fixed

Indirect

Examples?

Manufacturing Sector

Overhead Costs

How do we share out the

overhead costs?

Harry Potter Lego

Practice ActivityQuestion 4 - Nichols Plastics Ltd

Overhead Basis

Planning£

Moulding£

Finishing£

Stores£

Maint.£

Total

200000 500000 100000 50000 150000

Stores overheads apportioned

Subtotal

Maintenance o/heads apportioned

Total overheads apportioned

Question 5 – Fire Bases LtdUse template on page 4 of answer

book

Question 6 – Wyvern HospitalDraw this table in your notebooks

BUDGETED PRODUCTION OVERHEAD SCHEDULEOverhead Basis of

apportionment

Total£

Day Care Ward

£

Surgical Ward

£

Operating

Theatre£

Admin£

Overheads

112195

Realloc of Admin

Sub-total

Realloc of op theatre

TOTAL

4. Absorb the allocated and apportioned overheads into the costs of production of cost units.

Overhead Absorption Rate

= Total Budgeted Cost Centre OverheadsTotal Budgeted Activity

Machine Hour Labour HourThere are

others!

Machine Hour OARTotal cost centre overheads = OAR per machine hour Number of machine hours

Example: I n a machining department, the total annual overheads are estimated to be £ 250000. The budgeted annual total of machine hours in this cost centre is 10000 hours. Theref ore the machine hour rate is: I f , a particular cost unit takes 6 hours to produce in the machining department, the amount of overhead to be charged to the production of a single unit will be:

= 250000 = £25 per machine hour10000

= 6 x £25 = £150

Total cost centre overheads = OAR per direct labour hour Total direct labour hours Example: I n a packaging department the total annual overheads are estimated to be £ 60000. The budgeted annual total of direct labour hours in the department is 20000. Theref ore the direct labour hour OAR is: Consequently, if it takes half an hour to pack a cost unit, then how many overheads will be charged to each unit?

Direct Labour Hour OAR

= 60000 = £3 per labour hour20000

= 0.5 x £3 = £1.50

Question 7: Frampton Holdings

Demo

Question 8: Mereford College

Accountancy Department

Management Department

Budgeted total overheads (£)

22143 17251

Budgeted lecturer hours

1525 1300

Budgeted overhead absorption rate (£)

Direct Labour Hours

Total Cost Centre OverheadsTotal Direct Labour Hours

17251 ÷ 1300

= 13.27

Accountancy Department

Management Department

Lecturer hours 45 20

Budgeted overhead absorption rate (£)

Overhead absorbed by course (£)

14.52 13.27

653.40 265.40

Question 8: Mereford College

Question 9 – Osborne Engineering

Template in Answer Book

Question 10 – Beesmore LtdDraw table in your notebooks

Under & Over Absorption

OAR based on estimated:

Overhead Costs

Activity Level

Estimate

Estimate

Actual

Actual

Worked Example – Over absorption

Estimated Overhead Costs = £100,000

Estimated Machine Hours (MH) = 20,000

OAR set at = £5 per MH

Overheads will be ‘ABSORBED’

(allocated) based on machine hours used

3 machine hours

= 3 x £5£15

2 machine hours

= 2 x £5£10

Worked Example Over Absorption

Overheads of = £100,000 are recovered over the yearHowever ACTUAL overheads turn out at £80,000

You will only know this at the end of the year

Overheads absorbed = £100,000Actual Overheads = £80,000

So £20,000 OVER absorbed (£100,000 – £80,000)

The business has included too much in

overheads in their forecast production/cost

accounts

Adjustment required

Statement of Comprehensive Income

Sales 180000

Less: Production cost of salesDirect Costs (Prime Costs) 50000Overhead (OAR x Actual Activity) 100000

15000030000

Add back over absorption20000Gross Profit 50000

Up to here

Worked Example Under Absorption

Estimated Overhead Costs = £100,000

Estimated Machine Hours (MH) = 20,000

OAR set at = £5 per MH

Overheads will be ‘ABSORBED’

(allocated) based on machine hours used

3 machine hours

= 3 x £5£15

2 machine hours

= 2 x £5£10

Overheads of = £100,000 are recovered over the yearHowever ACTUAL machine hours used are 16,000

You will only know this at the end of the year

Overheads absorbed = £80,000 (16,000 hours x £5)Actual Overheads = £100,000

So £20,000 UNDER absorbed (£100,000 – £80,000)

The business has not recovered enough

overheads because the estimated 20,000

machine were not all used

Adjustment required

Worked Example Under Absorption


Sales180,000Less: Production cost of salesDirect Costs (Prime Costs) 50,000Overhead (OAR x Actual Activity) 80,000

150,00050,000

Less under absorption (20,000)Gross Profit 30,000

£ £

***********Remember ************

Overheads absorbed are calculated by OAR x Actual activity

If Actual overheads > overheads absorbed = Under-

absorption

Under-absorbed overheads = not enough overhead has been absorbed through actual activity; therefore you need to reduce profits. To do this you debit the Statement of Profit or Loss (Income statement).

If Actual overheads < overheads absorbed = Over-absorption

Over-absorbed overheads = too much overhead has been absorbed through actual activity; therefore you need to increase profits. To do this you credit the Statement of Profit or Loss (Income statement).

P & L A/C Adjustment

Over AB. Credit

Under AB. Debit

Question 11a(In your note books)

Estimated Production Overhead £80,000

Estimated Activity Level 40,000 hours

OAR = £2 per hour

Actual Production Overheads £84,000

Actual Activity Level is 45,000 hours

Overheads absorbed = 45,000 X £2 = £90,000Under or Over Absorbed?

Overheads Absorbed = £90,000

Actual Overheads = £84,000

OH Over absorbed by £6,000

Estimate

Actual

Adjustment

Question 11 b & c

Profit & Loss A/CUnder Debit

Over Credit

Over Absorbed OH £6,000

Balance b/d £17,000

c. Increase in profit

OH Over absorbed by £6,000

Question 11dStatement of Comprehensive

Income

Sales 245,000

Less: Production cost of salesDirect Costs (Prime Costs) 138,000Overhead (OAR x Actual Activity) 90,000

228,00017,000

Add Over Absorption 6,000Gross Profit 23,000

(£2 X 45000)

(90,000 – 84,000)

Question 12 & 13

Now its your turn!

Integrated Accounting System

Book keeping for Overheads

Book keeping for Overheads

Production Overheads

Work in Progress Profit & Loss

WIP £XXX

P O/H £XXX

Transfer of production OH to production (WIP)Over absorbed OH Adjustment

P O/H £XXX

P O/H £XXX

Under absorbed OH Adjustment

P O/H £XXX

P O/H £XXX

Production Overheads (PO/H) account is used to:1. Transfer Production Overheads WIP account2. Credit or Debit under/over absorption

Question 14OH absorbed @ £3.20 per hour

£3.20 x 1400 = £4480 absorbed

Actual OH were = £4720OH Absorbed = £4480Under Absorbed = £240

Production OH Account

Under Absorbed = £240

OH Absorbed = £4480Actual OH were = £4720

Debit would be P & L – Remember Under = Debit in P & L

Question 15 The Production overhead control account:

a Has a debit entry for direct labour costs

b Has a debit entry for indirect expenses costs

c Has a debit entry for indirect labour costs

d Has a debit entry for actual amounts paid out of the bank for overheads incurred

e Has a debit entry for overhead absorbed

f Has a credit entry for overheads absorbed

g Has a debit entry to work in progress

h Has a credit entry to work in progress

i Has a debit balancing figure which represents overheads under-absorbed

j Has a credit entry balancing figure which represents overheads over-absorbed

TRUE FALSE

Question 15 The Production overhead control account:

a Has a debit entry for direct labour costs

b Has a debit entry for indirect expenses costs

c Has a debit entry for indirect labour costs

d Has a debit entry for actual amounts paid out of the bank for overheads incurred

e Has a debit entry for overhead absorbed

f Has a credit entry for overheads absorbed

g Has a debit entry to work in progress

h Has a credit entry to work in progress

i Has a debit balancing figure which represents overheads under-absorbed

j Has a credit entry balancing figure which represents overheads over-absorbed

Question 16 – Boxit Ltd(Use template in work book)

Production Overheads – Cutting

Production Overheads – Assembly

Work in Progress - Production



Date Code number Debit £ Credit £

1 24 March 2200

24 March 2500

2 24 March 2200

24 March 2600 3 24 March 5500

24 March 2500

4 24 March 2600

24 March 5500



1 24 March 2200 (WIP)

24 March 2500(PO/H Cutting)

2 24 March 2200 (WIP)

24 March 2600(PO/H Assembly)

3 24 March 5500(SOCI)


4 24 March 2600(PO/H Assembly)

24 March 5500(SOCI)



1 24 March 2200 (WIP)


2 24 March 2200 (WIP)

24 March 2600(PO/H Assembly)

3 24 March 5500(SOCI)


4 24 March 2600(PO/H Assembly)

24 March 5500(SOCI)

OAR £10 x hours 1000 = £10000

OAR £4 x hours 2000 = £8000

OAR £10 x hours 1000 = £10000Actual Overheads - £11000

= £1000 Under

OAR £4 x hours 2000 = £8000Actual Overheads - £7500

= £500 Over

£10,000

£10,000

£8,000

£8,000

£1,000

£1,000

£500

£500

Absorption Costing

Advantages

Disadvantages

Ensures all overhead costs allocated

Conforms with IAS 2 - matching principle

Based on budgeted figures – over/under absorption

Can be expensive to collate detailed costing information to enable OAR to be calculated

Practice Question 1 - Wright LtdBUDGETED PRODUCTION OVERHEAD SCHEDULE

Overhead Basis of apport

Body shop

£

Sub-assembl

y£

Packing & dist

£

Quality control

£

Total£

Rent 1600000

Heating & Lighting

400000

Depreciation

200000

Admin 800000

Total

Reapp

Total

Practice Question 2 - DesignO/heads for Nov

Basis Total£

Warehouse£

Manufacturing£

Sales£

Admin£

Depreciation

NBV Fixed Assets

14600 160000 x 14600 800000 =2920

10220

730 730

Rent

% floor space occ

48000 9600 65 x 48000 = 31200

100

2400 4800

Other property overheads

% floor space occupied

12800 2560 65 x 12800 = 8320

100

640 1280

Admin overheads

Direct allocation

28800 28800

Staff costs Direct alloc

39800 4800 14340 12250 8410

144000 19880 64080 16020 44020Re-app of sales

75% warehouse 25% manuf

0 12015 4005 (16020)

Sub total 144000 31895 68085 0 44020Re-app admin

Equally 0 22010 22010 (44020)

144000 53905 90095 0 0

Practice Question 3 – Y Ltd

BUDGETED PRODUCTION OVERHEAD SCHEDULECost Basis of

apportDept J

£Dept K

£Dept L

£Total

£

Rent and rates

Floor space

3090 1545 2575 7210

Depreciation of machinery

Value of machinery

5400 3240 2160 10800

Supervisor’s salary

Production-line employee

6800 3400 2550 12750

Insurance of machinery

Value of machinery

375 225 150 750

Total 15665 8410 7435 31510

Question 4: i) Actual overheads – absorbed overheads

£2,500,000 - £2,650,000= £150,000 over-absorbed

ii) In the Income Statement this would be a Credit entry

Question 5

a) What is the overhead absorption rate per partner hour (to two decimal places)?Total overheads £59900 = £18.21 per partner hourTotal hours 3290 hours

Where the total hours are calculated by: 2 partners x 35 hours working for clients a week x 47 weeks a year = 3290 total hours. b) £59900 overheads + £60000 salaries = £36.44 per partner hour

3290 total hours

c) The partners are actually working 2 extra hours per week each than planned, so: 2 hours per week x 47 weeks x £18.21 = £1711.74 overheads over-absorbed per partner. Total overheads over-absorbed:2 partners x £1711.74 = £3423.48

Practice Question 6Materials Control Account

Trades Payable a/c 14365

WIP (Production) a/c 11632

Wages Control Account

Bank (Direct wages) 18375

WIP (Production) a/c 18375

Bank (Indirect wages) 2682 Production o/head Control a/c 2682 2105

7 2105

7Production Overhead Control Account

Bank (prod o/heads incurred)

6243 Production (1530 hrsx£5.20) 7956

Wages Control a/c 2682 Income Statement (Under absorbed o/heads)

969

Notes:(a) The Balance on your: Materials Control a/c your inventory of raw materials at the end of the period WIP (Production) a/c your inventory of part finished goods at the end of the period (b) Under-absorbed overheads:

Actual o/heads incurred 6243 + 2682 = 8925More than your overheads absorbed 1530 hrs @ £5.20 = 7956Therefore, overheads under absorbed 969

Dr: Income Statement 969Cr: Production o/head Control a/c 969 The effect of the above double-entry is to reduce profit via an Income Statement adjustment.

Practice Question 7Production o/heads absorbed:£6.45 per Direct Labour hour x 940 hours £6063

Actual o/heads incurred £5840Over-absorbed overheads £223a) Production overhead Control a/c

b) Here: Absorbed > actual overheads incurredTherefore we have over-absorbed overheads by £223. This amount will be:Dr: Production o/head control a/c £223Cr: Income Statement £223c) increased profitsWhy have we over-absorbed overheads?Overheads are absorbed at pre-determined absorption rates (£6.45 per DL hr)

•based on estimates of activity•& estimated overhead costs- if either of these have been incorrectly estimated- or, more DL hours have been worked than predicted

then overheads absorbed will be over-absorbed

too much will be charged to Production a/c and then the Finished goods a/c

need to reduce overheads in the accounts via the Income Statement (you therefore need to add overheads back)For example:Sales 1000Less: Production Cost of Sales (300)

700Add: Over absorption of overheads 223Profit 923

O/heads incurred (Bank) 5840 Production a/c (absorbed o/heads)

6063

Income Statement: over-abs o/heads

223

6063 6063

Question 6

a) What is the overhead absorption rate per partner hour (to two decimal places)?Total overheads £59900 = £18.21 per partner hourTotal hours 3290 hours

Where the total hours are calculated by: 2 partners x 35 hours working for clients a week x 47 weeks a year = 3290 total hours. b) £59900 overheads + £60000 salaries = £36.44 per partner hour

3290 total hours

c) The partners are actually working 2 extra hours per week each than planned, so: 2 hours per week x 47 weeks x £18.21 = £1711.74 overheads over-absorbed per partner. Total overheads over-absorbed:2 partners x £1711.74 = £3423.48

Homework

Remaining questions in hand-out

Paying Rent Helen £ Alice £ Khalid £ Tim £ Rent based on Room Size Rent based on Gross Income...

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