Accounting 9706 · AS & A Level · Traditional costing methods

Traditional costing methods — practice question

T Limited produces goods in two factories, Factory A and Factory B. Factory A contains two production departments, Assembly and Finishing, as well as two service departments, Administration and Canteen. Absorption costing is used in this factory. The budgeted overheads for February 2021 have already been apportioned. The basis to use for reapportioning the service department overheads is as follows:
(a)[4]

Prepare a statement showing the reapportionment of service department overheads for February 2021.

(b)[4]

Calculate the overhead absorption rate for each production department to two decimal places.

(c)[7]

Prepare a statement to show the total selling price that T Limited will quote to the customer, given the company’s policy of earning a profit of 40% on selling price.

(d)[2]

State two reasons why overheads may be under absorbed.

(e(i))[1]

State the meaning of allocation of overheads.

(e(ii))[1]

State the meaning of apportionment of overheads.

(f)[4]

Calculate the maximum profit per month that can be earned if materials were sourced from the overseas supplier and production was restricted to 7600 units.

(g)[7]

Advise the directors whether they should change the supplier or not. Support your advice by weighing up both financial and non-financial factors.

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