Question 3
Lewitt PLC has asked for your help in designing their new costing system. You have
ascertained that they have two direct production departments: manufacturing and finishing,
and two production overhead departments: stores and canteen.

The allocated costs in the period are budgeted to be:
Manufacturing £360,000 Stores £120,000
Finishing £320,000 Canteen £30,000
Costs to be apportioned:
Rent on basis of floor area £26,000
Machine depreciation on basis of original cost of machinery £60,000
Management time on basis of time spent in each dept. £120,000
Floor Area Machinery Management
Sq mtrs Original cost Time
Manufacturing 300 £450,000 48%
Finishing 100 £30,000 32%
Stores 50 £5,000 5%
Canteen 70 £15,000 15%
Stores Number of
Requisitions Employees
Manufacturing 150 35
Finishing 10 25
Stores N/A N/A
Canteen 40 N/A
Budgeted machine hours in manufacturing department is 25,183
Budgeted direct labour hours in finishing department is 27,095
Calculate the overhead absorption rate for the manufacturing and finishing departments.

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