Tom and Jerry Ltd (T&J Ltd) produces machine parts for

Tom and Jerry Ltd (T&J Ltd) produces machine parts for the airline industry. Its factory space is divided into three areas: preparation, assembling and finishing. These three functional areas are used as production cost centres. T&J Ltd.’s management accountant, Spike, has asked you to prepare a schedule showing the apportionment of the company’s production overheads between the three production cost centres for the year ending 30 September 2020. The production overhead totals are as follows: 

Overheads £

Factory costs (rent, insurance, cleaning etc.) 700,000

Canteen costs 18,496

Machinery depreciation 17,650 Machinery maintenance and repair 2,961 Supervisory salaries 23,358 Total Overheads 762,465 Relevant data for apportioning the overheads is included in the following table:

PRODUCTION COST CENTRES TOTAL Preparation Assembling Finishing

Floor Area (sq. metres)

7,000 9,000 4,000 20,000

Number of employees

16 12 6 34

Machinery value (£) 26,000 112,000 38,500 176,500

Maintenance and repair callouts

2 6 1 9
 
Further relevant information:

A. During the year to 30 September 2020:

Preparation department plans 60,000 direct labour hours to be worked

Assembling department plans 45,000 machine hours to be worked

Finishing department plans 35,000 machine hours to be worked

B. A specialist machine part, the TJD10, has been ordered by Boeing. It is estimated that there will be 20 machine hours in the Assembling department, 10 machine hours in the Finishing department and 6 direct labour hours will be worked on it in the Preparation department. Its total direct costs should amount to £100.

Required:
(a) Using the information provided prepare an overhead apportionment schedule for the management accountant by calculating (to 2 decimal places) the total amount of overhead to be charged to the three production departments for the year to 30 September 2020.

(b) Calculate an appropriate overhead absorption rate (OAR) (correct to 2 decimal places) for: i. The Preparation department ii. The Assembling department iii. The Finishing department.

(c) Calculate (correct to 2 decimal places) the total factory cost of the specialist machine part, the TJD10.