Question Tag: Overhead Budget

a)
Cost estimation involving forecasting a future cost relating to a process based on past information, by techniques such as High-Low Method, Least-square method, engineering method, etc. Budgets are prepared by organizations for a future period. Therefore, the costs relating to those future periods will have to be calculated based on a cost estimation technique.
(3 marks)

b)
i) Quarterly Sales Budget (in units) for 2021

(4 marks)

ii) Quarterly Production Budget (in units) for 2021

(3 marks)

c)
i) Using High-Low Method for Variable Production Overheads Budget (2021)

Variable overheads per unit:
GH¢200 per unit
Increase of 10% (for 2021):
GH¢220 per unit

(3 marks)

ii) Fixed Production Overheads Absorption Rate per unit for 2021

• Fixed production overheads = [18,600,000 — (18,000 × 200)] = GH¢15,000,000
• Increase of 10% for 2021 = GH¢16,500,000
• Total production for 2021 (Units) = 126,288
• Fixed POHs absorption rate per unit for 2021 = GH¢130.65
  (2 marks)

d)
To compile standard costs, it is necessary to establish standards i.e., planned amounts for each of the following:

Material:

1. Price: Established with the assistance of the buying department; it is necessary to take account of quantity discounts and price increases.
2. Quantity: (Including an allowance for wastage) should be available from the production department.
3. Quality/Type: This is closely linked to quantity and design of the product and may involve a decision by the production department as to which material is most suitable.

Labour:

1. Identify the tasks: that are to be carried out on the product.
2. Skill level: required or grade of worker needed.
3. Time allowed: It may be necessary to use work study to decide on the production method and the associated standard time.
4. Rate of pay: This will be dependent on the grade of employee and may be subject to a company-wide or national wage agreement.
   (5 marks)
   (Total: 20 marks)