Book don Pic manufactures three products in two production departments. a Machine Shop and a… 1 answer below »

Book don Pic manufactures three products in two production departments. a Machine Shop and a Fitting Section; it also has two Service Departments. a canteen and a machine maintenance section. Shown below are next year's budgeted production data and manufacturing costs for the company.

It has been estimated that approximately 70% of the Machine Maintenance Section's costs are incurred servicing the Machine Shop, and the remainder incurred servicing the Fitting Section.

Required:

(a) (i) Calculate the following budgeted overhead absorption rates: A machine hour rate for the Machine Shop. A rate expressed as a percentage of direct wages for the Fitting Section. All workings and assumptions should be clearly shown.

(ii) Calculate the budqeted manufacturing overhead cost per unit of Product X.

(b) The production director of Bookdon Pic has suggested that. 'as the actual overheads incurred and units produced are usually different from that budgeted and as a consequence profits at each month end are distorted by under/over absorbed overheads, it would be more accurate to calculate the actual overhead cost per unit each month end by dividing the total number of all units actually produced during the month into the actual overheads incurred.' Critically examine the production director's suggestion.