Budgeted information relating to two departments of Rydons Tables Ltd for the next period is as follows:
|
Department |
Productio overhead £ |
Direct material cost £ |
Direct labour cost £ |
Direct labour hours |
Machine hours |
|
1 |
270,000 |
67,500 |
13,500 |
2,700 |
45,000 |
|
2 |
18,000 |
36,000 |
100,000 |
25,000 |
300 |
Individual direct labour employees within each department earn differing rates of pay according to their skills, grade and experience.
Required
(a) Rydons Tables intends to use a production overhead cost rate of £6 per machine hour for absorbing production overhead cost into jobs, based on the budget. Write a short note to the managers of the business commenting on this proposal.
(b) During the past year, Rydons Tables has been using a production overhead cost rate of £5.60 per machine hour. During the year overheads of £275,000 were incurred and 48,000 machine hours worked. Were overheads under absorbed or over absorbed, and by how much?