Question: Precious Hands limited offers specialist engineering services to the car industry. It has two production departments, i.e., machining and finishing and a service department which maintains the machinery of both departments. The budgeting software shows that expected production overheads for the forthcoming year are:

Overheads Pula
Rent and rates 5520
Buildings insurance 1320
Insurance of machinery 1650
Lighting and heating 3720
Depreciation of machinery 11000
Supervisors' salary 30000
Maintenance department salary 23590
Factory cleaning 4800
The following additional information is available:
machining finishing maintenance
Floor space (square metres) 300 200 100
Number of employees 6 3
Carrying amount of machinery P 40000 P 15000

Required:

a) Prepare an analysis of production overheads showing the basis of allocation and apportionment to the three departments of the business.

b) Re-apportion the service department overheads to production departments on the basis of value of machinery.

c) The factory works a 35-hour week for 47 each year. Calculate an overhead absorption rate based on direct labour hours or each of the two production departments.