Question 1: The Utopian Hotel is developing a cost accounting system. Initially it has been decided to make four cost centers: Residential and Catering deal directly with customers whilst Housekeeping and Maintenance are internal service cost centers.
The given overhead details have been estimated for the next period:
In the period it is estimated that there will be 2800 guest nights and 16 000 meals will be served. Housekeeping works 70% for Residential and 30% for Catering and Maintenance works 20% for Housekeeping, 30% for Catering and 50% for Residential.
Required:
a) Make an overhead statement showing clearly allocations and apportionments to each cost centre.
b) Compute suitable overhead absorption rates for Residential and Catering.
c) Compute the under/over absorption of overheads if actual results were as follows:
Residential: 3050 guests nights with overheads of Rs 144 600
Catering: 15 250 meals with overheads of Rs 89 250
d) Comment in brief on possible future developments and advantages in the Utopian Hotel’s cost accounting system if it decides to adopt the Activity Based Costing.