Cost allocation

Question 1

Allocation basis

Answer 1

Indirect material - (stated in the question) use DM if not

Indirect labour - (stated in the question) use DL if not

Rent/heating/lighting - Floor space

Maintenance; Power of machines - No of machines

Depreciation & Insurance of machinery - Value of machinery

Stores costs - Total value of stores requisition

Supervisor’s salary; Canteen costs - No of employees

Question 2

Step by step process of allocation

Answer 2

Allocate costs to suitable departments
Make a table with the total costs
Allocate service departments

Question 3

Overhead absorption rate

Answer 3

Total cost of the department/ no of direct labour hours for the department

Question 4

Overhead costs

Answer 4

Overhead absorption rate x No of hours from extract

Question 5

Statement of cost

Answer 5

Direct materials
Direct Labour
Total prime cost

Overhead A
Overhead F
Total overheads

Total production costs