South Engineering Limited offers specialist engineering services to the car industry.It has two production departments- machining and fishing and a service department which maintains the machinery of both departments. Expected production overheads for the forthcoming year are:

Rent and rates 5 520
Buildings insurance 1 320
Insurance of machinery 1 650
Lighting and heating 3 720
Depreciation of machinery 11000
Supervisory salaries 30 000
Maintenance department salary 16 000
Factory cleaning 4 800

Question

South Engineering Limited offers specialist engineering services to the car industry.It has two production departments- machining and fishing and a service department which maintains the machinery of both departments. Expected production overheads for the forthcoming year are:

Rent and rates                      5 520
Buildings insurance             1 320
Insurance of machinery       1 650
Lighting and heating            3 720
Depreciation of machinery 11000
Supervisory salaries             30 000
Maintenance department  salary  16 000
Factory cleaning                      4 800

goldrush18 · Answer

the following information is available:
                                                         machining        finishing      maintenance
floor area(square metres)                    300                 200                   100
number of employees                                6                    3                      1
value of machinery                          $40 000              $15 000               -

the factory works a 35 hour week for 47 weeks each year

Required:
prepare an analysis of production overheads showing the basis of allocation and apportionment to the  three department of the business and then re-apportion the service department overheads to production departments on the basis of value of machinery