As the firm’s accountant you are required to write a report explaining your general approach to the use of cost accounts and in particular the problems of overhead costing. The company has two producing departments, machining and assembly, and one service department, the canteen. Direct departmental overhead for the coming year is estimated as machining K50,000, assembly K40,000 and canteen K10,000. Details of estimated indirect overhead are as follows: Rates K1,000 Depreciation K9,500 Light and power K600 DEPARTMENTAL DATA No. of Cost of Kilowatt hours employees equipment square feet Machining 600 20 K10,000 600 Assembly 1,100 10 K20,000 1,200 Canteen 300 5 1,000 200 Estimated direct Estimated direct Estimated Machining 10,000 18,000 8,000 Assembly 15,000 12,000 20,000 The above activity levels are based on what could be attained if production was at full capacity. Expected activity for the coming year is estimated to be 70 per cent full capacity, and normal activity at 80 per cent.
As the firm’s accountant you are required to write a report explaining your general approach to the use of cost accounts and in particular the problems of
Rates K1,000
Depreciation K9,500
Light and power K600
DEPARTMENTAL DATA
No. of Cost of
Kilowatt hours employees equipment square feet
Machining 600 20 K10,000 600
Assembly 1,100 10 K20,000 1,200
Canteen 300 5 1,000 200
Estimated direct Estimated direct Estimated
Machining 10,000 18,000 8,000
Assembly 15,000 12,000 20,000
The above activity levels are based on what could be attained if production was at full capacity. Expected activity for the coming year is estimated to be 70 per cent full capacity, and normal activity at 80 per cent.
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