Alta Ltd is a company that manufactures office furniture. The furniture is assembled
in their factory from components purchased from suppliers. Raw materials are
determined from the product specification, and labour hours are recorded for each
item manufactured. Overheads are allocated to the cost of inventories on the basis
of total direct labour cost.
The draft accounts at the end of December 2018 reflect the following Rand values
for direct material and direct labour costs in inventory:
Raw materials
R
Work-in progress
R
Finished goods
R
Direct materials 229 240 192 622 274 400
Direct labour – 17 510 103 800
The above work-in-progress and finished goods were manufactured in December
2018. The company was operating at normal capacity.
An extract of the trial balance of Alta Ltd for December 2018 included the following
costs:
R
Direct labour 121 310
Selling and distribution costs 120 140
Depreciation 10 250
Factory manager’s salary 25 000
Other production overheads 62 200
Rent expense 13 000
Administrative overheads 74 400
Accounting and secretarial fees 17 300
Required
4.1 Calculate the production overhead rate for December 2018. Round off
the rate to two decimal places. (9)
4.2 Calculate the value of overheads to be allocated to the cost of
inventories of Alta Ltd for December 2018.
