D Limited is a manufacturing company which uses absorption costing. The factory has two production departments, Cutting and Finishing. It also has two service departments, Stores and Canteen. Some budgeted overheads have been allocated to departments as follows: Production departments Total $ Cutting $ Finishing $ Service departments Stores $ Canteen $ Overheads allocated 424 560 183270 145990 45380 49920 The following budgeted overheads have yet to be allocated or apportioned. Supervisor's salary: Cutting department $ 28 200 Supervisor's salary: Finishing department 26 300 Depreciation of machinery 87000 Rent 48000 Apportionment is based on the following information. Cutting Finishing Stores Canteen Cost of machinery ($) 220000 152000 37000 26000 Floor area (m²) 1500 890 280 330 Issues from stores 84 43 Number of employees 45 31 6 -

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2025). The mark or mark type is shown in brackets.

1. [5] (a) Complete the following table to show the apportionment of overheads and the reapportionment of service department overheads. Production Service departments departments Total Cutting Finishing Stores Canteen $ $ $ $ $ Overheads 424 560 183 270 145 990 45 380 49 920 allocated Supervisors' 54 500 28 200 26 300 – – salaries Depreciation of 87 000 44 000 30 400 7 400 5 200 (1) machinery Rent 48 000 24 000 14 240 4 480 5 280 (1) Subtotal 614 060 279 470 216 930 57 260 60 400 Reapportionment 33 146 22 834 4 420 (60 400) (1) Canteen department Subtotal 312 616 239 764 61 680 – Reapportionment 40 796 20 884 (61 680) – (1) OF Stores department Total overheads 353 412 260 648 – – (1) OF
2. [4] (b) Calculate, to two decimal places, an overhead absorption rate for each production department using a suitable basis. Cutting department = 353 412/8 220 = $42.99 (1) OF per machine hour (1) Finishing department = 260 648/7 144 = $36.48 (1) OF per labour hour (1)
3. [5] (c) Complete the following table to show the value of the closing inventory of component × using AVCO. Inventory valuation $ 1 Jan 48 6 Jan 144 (1) 9 Jan 88 (1) 16 Jan 160 (1) 21 Jan 50.52 (1) 27 Jan 150.52 (1)
4. [6] (d)(i) Calculate the profit to be made in August 2025 for each option. Option A Units x Contribution Materials Materials contribution $ used available Product Bee 60 × $19 1140 (1) 420 189 Product Cee 21 × $21 441 (1) 189 – Total 1581 contribution Less fixed 1 100 costs Profit for month 481 (1) OF Workings Bee Cee $ $ Contribution per unit 19 21 Kg required per unit 7 9 Contribution per kg materials 2.71 2.33 (1) Forecast materials for August: Bee (60 × 7 = 420) + Cee (50 × 9 = 450) = 870 (1) Materials available: 870 × 70% = 609 (1)
5. [3] (d)(ii) Calculate the profit to be made in August 2025 for each option. Option B Remaining units of Cee (50-21) = 29 units (1) New contribution Cee: $21 – $9 = $12 (1) Profit: as for option A $481 + (29 × $12) = $829 (1)
6. [7] (e) Advise the directors which option they should choose. Justify your answer. Option A Advantages • Option A produces higher profit (1) OF • No concerns over reliability/meeting deadlines (1) • Same quality of products (1) • No need to purchase from overseas (1) • Material price doesn't increase (1) Disadvantages • May lose consumers to competitors (1) leading to less sales or revenue (1) • Impact on workforce of reduced production (1) • Reduced production means less sales/profit (1) Option B Advantages • Option B produces higher profit (1) • No loss of sales/meet demand (1) • Run at maximum capacity or maintains production (1) Disadvantages • Will exchange rates affect price for Option B?(1) • Will new supplier prove to be reliable/trustworthy/meet delivery times? (1) • Will new supplier provide materials of usual quality/risk of damage during shipping (1) • Higher delivery costs (1) • Higher cost of materials/more expensive (1) • Possible import taxes (1) Comments Max 6 Decision supported by a comment (1) Accept other valid responses