Traditional costing methods — practice question

Define the term cost centre.

Define the term allocation of overheads.

Define the term apportionment of overheads.

Reallocate the service department’s overheads to the production departments.

Calculate an appropriate overhead absorption rate, correct to two decimal places, for the Cutting department.

Calculate an appropriate overhead absorption rate, correct to two decimal places, for the Finishing department.

Calculate the under-absorption or over-absorption of factory overheads for each production department for the year ended 31 August 2022. (i) Cutting department (ii) Finishing department

Calculate the profit for one month.

Calculate the profit to be made on each option in the first month of production. Option A.

Calculate the profit to be made on each option in the first month of production. Option B.

Advise the directors which option they should choose. Justify your answer by considering both financial and non-financial factors.