Task 1

At present Dina produces ring doughnuts and since every item is identical, she is charging

overheads simply by dividing the total forecast overheads by her total forecast output. Her

estimated total production for the year is 615 batches

Dina makes 3 batches early morning for her deliveries

She estimates the direct cost of making 3 batches of doughnuts to be:

Oil £37.40

Dough mix £41.00

Yeast £3.00

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Below are the forecast overhead costs for the period:

Administrator salary £16000

Dina’s salary £22000

Machine insurance £1750

Rent £4850

Van Insurance £800

Power £900

Using this basis for your costing, calculate the production cost per doughnut of her current

output

(10 marks)

Task 2

Dina has had requests for a larger range of products, including jam doughnuts, and a range

of toppings and glazing. To accommodate this change in production she realises she will

need a more sophisticated costing system. She asks your advice, and you decide to set up

an absorption costing system.

Complete an overhead analysis for the production process using mixing, shaping, proofing,

frying and cooling as production cost centres and administration and storage as service cost

centres. Dina’s salary is to be apportioned equally between the production cost centres.

The secondary apportionment of storage costs is shared equally between all the production

cost centres and administration. Administration is split between the production cost centres

in the ration of 3:2:2:2:1.

(25 marks)

Task 3

Calculate appropriate overhead absorption rates for each of the production cost centres

based on the information that most of the process is done by machine with only frying and

cooling being done by hand

(10 marks)

Task 4

Dina makes doughnuts in batches of 400, each batch requires 2 hours in mixing, 30 minutes

in shaping, 15 minutes in proofing and a total of 1 hour in frying. Only a small number are

fried at a time, for just a couple of minutes each. They are then placed on trays for a total of

30 minutes to cool

Using the direct cost per unit from task one and the overhead absorption rates from task

three, calculate the absorption cost per batch and per doughnut.

(20 marks)

Task 5

If Dina employs an absorption costing system, then she will encounter the problem of under

and over absorption of overhead at the end of a period. As she has not studied cost

accounting in detail, this is a new concept for her. Write to Dina explaining what under and

over absorption means, and the possible reasons for it occurring

(10 marks)

Task 6

The expansion of the product line will involve a range of fillings, glazing and toppings. This

will not only have implications for costing but also for stock holding.

Using the classifications of Raw Materials, Work in Progress and finished Goods, detail he

particular stock control problems relating to each of these types of inventory for the

production process described above.

(15 marks)

For presentation and use of spreadsheets

(10 marks)

(total 100 marks)

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