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Revision question on budgeting and budgetary control (star luggage limited)

Star luggage limited was established in 1990 and produces a variety of suitcases, cabin bags and holdalls for high street stores. The company has an efficient manufacturing facility comprising two production departments, forming and finishing, and two service departments, Stores and Machine Maintenance. While direct product costs are easily established and recorded, overhead costs attributable are more difficult to ascertain. Currently, the company uses a traditional absorption costing system to assign overheads to its products.

Budgeted cost information for the month of August is shown below:

  Total Forming Finishing Stores Machine Maintenance
Direct labour 285,400 152,100 133,300    
Indirect labour 108,250 16,400 15,500 31,750 44,600
Power 62,800  
equipment depreciation 54,000
equipment insurance 28,400
factory building repairs 17,800
factory security 38,750
Marketing costs 18,150
factory rent 36,000

Details relating to the company’s budgeted activity for the month of August have also been provided:

  Total Forming Finishing Stores Machine Maintenance
Machine hours 26,500 21,200 5,300    
Direct labour hours 10,800 3,780 7,020    
floor area (square metres) 1,600 800 300 400 100
Value of stores issues 180,000 162,000 18,000    
Kilowatt hours (% usage) 100 50 30 10 10
Value of equipment €800,000 €400,000 €240,000 €80,000 €80,000


(a)     On the basis of the information provided above, prepare a schedule of the total budgeted overheads for each of the four departments, clearly showing the basis of apportionment.

(b)     Calculate the total budgeted overheads for both production departments after the service departments have been re-apportioned to them.

(c)     Compute pre-determined overhead absorption rates for each of the production departments. 

(d) At the end of August the following information was obtained:       Forming       Finishing
  Actual overhead costs €248,000 €107,195
  Actual labour hours worked 4,250 8,125
  Actual machine hours recorded 20,950 5,750
  Calculate the under or over absorbed overhead for the forming and finishing departments.

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