Cease Fire Ltd has two production departments, Machining and Assembly and two service departments, Tooling and Maintenance.
The budgeted activity levels for April 2015 were thus:
Machining 400 hours $16 000
Assembly 2400 hours $9 600
The service departments are apportioned thus:
Tooling 70% to Machining
20% to Assembly
10% to Maintenance
Maintenance 50% to Machining
30% to Assembly
20% to Tooling
During April 2015 the actual results were:
Machining 420 hours $12 000
Assembly 2 300 hours $8 000
Tooling $5 000
Maintenance $3 000
Required
a. Calculate the budgeted overhead absorption rate per hour for each of the production departments
b. Calculate the amount of overhead to be charged to each of the production departments
c. Calculate the amount of under or over absorption of overhead for each of the production departments
d. State what is meant by under or over absorption of fixed overhead and state the reasons as why this may occur