unit 6 resit skills test

taskey

evening

i am resitting my unit 6 skills test and am doing a mock test first.

quick question.

i have calculated my before and after overhead absorption rates. they are as follows

Before (direct)
£9.14 per machine hour
£8.71 per labour hour
£8.70 per labour hour

After (step down)
£7.78 per machine hour
£7.32 per labour hour
£7.13 per labour hour

i now have to prepare a memo regarding the change in apportionment method. and i have to recommend the direct or the stepdown approach to be used.

can you please give me reasons as to why i would choose which.

Thanks in advance

Tracy

annefreeman

Hi, I've done this simulation and opted for the step down method as this was a fairer representation of the true costs of all departments, including the servicing departments.

If I recall from last week's memory correctly, the stores department serviced the other 'service' department and also the production departments. The direct method did not allow you to account for this. The service department's total overheads was just split up over the 2 or 3 production departments on whatever basis was being used. However, the step down method provided for the interaction between the 2 service departments and therefore costs were properly apportioned out over the 3 departments after this was done.

Hope this makes sense? I'm not always very good at explaining it out loud to others. It's just that the step down method ensured fairness in allocation/apportionment whereas the direct method meant some departments' costs were overinflated.

taskey

excellent. that is just what i wanted.

did you do your as your actual sim? as i have been given this one as my mock. once i am competent i will then do a proper sim.

Tracy