Professional Documents
Culture Documents
Issue 1:
(a) Total hospital in-patient days = 25 x 10,000 = 250,000.
Total budgeted overheads = (6,000,000 + 2,000,000 + 1,500,000 + 1,000,000 +
1,000,000) = 11,500,000.
Hospital overhead absorption rate per in-patient day = 11,500,000 / 250,000
= 46 per in-patient day.
Issue 2:
(a) Total machine hours = 60,000 hours.
Overhead absorption rate = 1,212,000 / 60,000 = 20.20 per machine hour.
1
LaiACCT500/Fall16 (answers to seminar 2)
(c) Using machine hours as the absorption basis, Pine becomes significantly more
expensive than the others as it uses more machine hours. If labour hours are chosen,
Spruce becomes more costly than the others. However, using labour hours, the costs are
less widely dispersed, with 3.35 cost difference per unit between the products compared
with 8.92 for machine hours.
This example shows how the choice of overhead absorption basis can distort product costs
and selling prices. This method of pricing adopted by the company is called cost-based
pricing and it ignores the market demand and prices for the products.
Issue 3:
(a)
Department A B C UNDER ADMISS TOTAL
EXPENSE '000 '000 '000 '000 '000 '000
Allocated o/hs 42 65 88 28 38 261
Maint'ce Area 150 90 30 37.5 22.5 330
Insurance Area 20 12 4 5 3 44
No of
Comp Main comps 22.5 24 15 13.5 15 90
No of
Telephone phones 52.8 44 35.2 35.2 52.8 220
Depreciation Value 60 50 40 20 10 180
H&L Area 300 180 60 75 45 660
No of
Personnel people 49 84 28 28 42 231
Lecturer Paid
s Hours per hour
Accountancy 360 70 25,200
Business 150 50 7,500
Communications 100 60 6,000
Overheads
A 360 413.05 148,698
B 150 396.09 59,414
C 100 394.34 39,434
Number of students 40
FEE 14,509
(c) The fee is based on predicted numbers but no account is taken of the likely demand for
the course if the fee is set at over 14,509 (or less than 14,509). This method of pricing is
similar to cost plus pricing but it ignores the actual market place. The institution should
look at similar courses run in other universities and find out what fees are being charged
by them. It could be that the fee quoted above is too low or too high when comparisons are
made. If the price is vastly different we must be able to justify the price (if too high) or we
might be able to adjust upwards (if too low).
3
LaiACCT500/Fall16 (answers to seminar 2)
Issue 4:
(a) Assembly Polish Finish Stores QC Total Basis
Expense
Rent and Rates 15,000 6,000 6,000 3,000 2,000 32,000 Area 1.
Value of
Machine Insurance 7,500 3,125 2,500 1,250 625 15,000 Machines 1.
Telephone
Telephone 1,600 1,600 3,200 800 800 8,000 points 1.
Value of
Depreciation 22,500 9,375 7,500 3,750 1,875 45,000 Machines 1.
Heat and light 12,000 4,800 4,800 2,400 1,600 25,600 Area 1.
Prod'n Supervisors
Salaries 38,400 21,600 12,000 72,000 DLH 1.
(b) 12
Job
( c) 254
Direct costs
Materials 167
Labour
Assembly 5*12 60
Polish 4*13.80 55.2
Finish 3*10.80 32.4
Total Direct Costs 314.6
Overheads
187.1
Assembly 5*37.42 0
4
Polish 4*34.96 139.84
Finish 3*45.94 137.82
Total Costs 779.36
Total
(d) Cost = 779.36 (60% of Selling price)
Profit Margin = 40% of Selling price
Issue 5:
Work the answers out yourself and compare them with those of your classmates.
Issue 6:
Total overheads are 270,000 per month.
Total budgeted machine hours = [(600,000+800,000+ 400,000)/60] = 30,000 machine hours.
Overhead Absorption Rate = 270,000 / 30,000 = 9 per machine hour.