Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2). There are also two service cost centres (S1 and S2) in the factory. The following information has been extracted from the budget for the coming year:
P1 P2 S1 S2
Allocated and apportioned
production overheads £477,550 £404,250 £132,000 £96,000
Number of employees 30 65 10 15
Total machine hours 68,000 11,400
Total direct labour hours 4,000 14,000
Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3
respectively.
Required:
(a) Calculate:
(i) the machine hour absorption rate for cost centre P1, and
(ii) the direct labour hour absorption rate for cost centre P2.
(b) Explain the difference between production overheads that have been ‘allocated' and those which have been ‘apportioned' to cost centres. Explain why some manufacturing companies are able to allocate electric power costs to production cost centres, whereas others can only apportion