Determine The Machine Hour Absorption Rate For Cost Centre.

Question :
Phoebe Ltd manufactures several 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 subsequent 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 centers 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 correspondingly.

Required:

(a) Determine:

(i) the machine hour absorption rate for cost centre P1, and

(ii) the direct labor hour absorption rate for cost centre P2.

(b) Describe the difference between production overheads that have been `allocated` and those which have been `apportioned` to cost centres. Describe why some manufacturing companies are able to allocate electric power costs to production cost centres.