Production overheads at Zurich Manufacturing total up to £600,000. There are three support departments for the business, quality control, maintenance and warehousing. Quality control's total overheads are £100,000 per annum. 60% of quality control's time is spent on assessing the quality of Zurich Manufacturing's own production. The other 40% of quality control's time is spent on assessing the quality of production at other small businesses in the local area. Maintenance overheads total up to £144,000 per annum. 75% of the maintenance department's time is spent on servicing production machinery, 20% on servicing warehousing's fork lift trucks and 5% on servicing equipment used by the administration department. 80% of warehousing space is allocated to storing raw materials and finished goods for Zurich Manufacturing with the other 20% being rented out to other local businesses in the area. Warehousing costs total up to £151,200 for the year. Production department employees' normal working hours are 40,000 each year. During the current financial year, actual hours worked were 48,000. What is the hourly overhead recovery rate (correct to two decimal places) that will be applied to products produced in the production department?

Question

Quizplus · Accepted Answer

The total production overheads are £600,000. Quality control, maintenance, and warehousing contribute to these overheads based on the time and space allocated to Zurich Manufacturing. Calculating the overheads specifically for Zurich Manufacturing: Quality control contributes £60,000 (60% of £100,000), maintenance contributes £108,000 (75% of £144,000), and warehousing contributes £120,960 (80% of £151,200). Adding these to the production overheads gives a total of £888,960. Dividing this by the actual hours worked (48,000) gives an hourly overhead recovery rate of £18.52. However, since the options provided do not match this calculation, the closest option is £22.80, which might suggest a miscalculation or misinterpretation in the problem setup.

Production Overheads at Zurich Manufacturing Total Up to £600,000