Omega Manufacturing has three production departments, milling, finishing and painting. The painting department has allocated overheads of £120,000 and a normal level of activity of 10,000 labour hours per annum. The repairs and maintenance service department has allocated overheads of £100,000 and the painting department's usage of the repairs and maintenance department is 30% of the total capacity of that department. Of the 28 employees in the firm, 7 are in the painting department. Canteen costs for Omega Manufacturing are £80,000 per annum. What is the painting department's hourly overhead absorption rate on a labour-hour basis?

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The painting department's overhead absorption rate is calculated by dividing the total overheads allocated to the department by the normal level of activity in labour hours. The painting department's overheads include its own allocated overheads (£120,000) and 30% of the repairs and maintenance overheads (£100,000 * 30% = £30,000). Therefore, the total overheads for the painting department are £150,000 (£120,000 + £30,000). Dividing this by the normal level of activity (10,000 labour hours) gives an overhead absorption rate of £15 per labour hour.

Omega Manufacturing Has Three Production Departments, Milling, Finishing and Painting