Abalone operates three production departments and one service department. It estimated
monthly overheads for the company at £72,600, divided as follows:
| A £ |
B £ |
Production departments |
Service department |
|
| C £ |
D £ |
|||
| Indirect labour | 20,000 | 16,000 | 8,000 | 7,000 |
| Other indirect overheads | 10,000 | 6,000 | 3,000 | 2,600 |
| 30,000 | 22,000 | 11,000 | 9,600 |
D’s overheads are to be apportioned between the production departments in the ratio:
A 40%, B 40%, C 20%.
Apportion D’s overheads to the production departments. If Abalone uses indirect
labour hours as the basis for its overhead absorption rates (OARs), and pay rates averaged
£20 per hour in Department A and B, and £16 per hour in Department C, what is
the OAR for each of the three departments, A, B and C?
