Accounting 9706 · AS & A Level · Traditional costing methods

Traditional costing methods — practice question

R Limited applies absorption costing at one of its factories. The factory contains two production departments, Machining and Assembly, together with two service departments, Support and Canteen. Certain budgeted overheads have already been apportioned for April 2022. The outstanding budgeted overheads are Depreciation of machinery $25000 and Production departments’ supervisor’s wages $19800.
(a)[5]

Complete the table below to show the apportionment of overheads and the re-apportionment of service department overheads.

(b)[4]

Calculate the overhead absorption rate for each production department, giving your answer to two decimal places.

(c)[2]

State two reasons why overheads could be under-absorbed.

(d(i))[5]

Calculate the monthly profit expected for Option 1.

(d(ii))[5]

Calculate the monthly profit expected for Option 2.

(e)[5]

Advise the directors which option they ought to select. Justify your answer by considering both financial and non-financial factors.

(f(i))[2]

State two benefits of budgetary control.

(f(ii))[2]

State two limitations of budgetary control.

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