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total: 20 Marks) QUESTION TWO Kalati Manufacturing Company Ltd. is located at the industrial area in Nairobi. The company uses four different machine groups A, B, C and D in its manufacturing process. The overhead costs budget for the year ending 31 December 2020 is as follows: Sh. "000" Indirect wages 12,000 Holiday pay and national insurance 10,200 Supervision 16,680 Machine maintenance (wages) 14,000 14.000 2.600 Power 4,200 Tooling costs 13.300 Insurance of machinery 2.520 Insurance of buildings 1.600 Depreciation 10.500 2 Supplies Rent and rates 12.400 100.000 At present, overheads are absorbed into the cost the company's products by means of a single direct wages percentage of 70 percent. The company wishes to change to machine hour overhead absorption rate for each of its four different machine groups. The following data is available for each of the four machine groups: Total Sh.'000 Tooling costs Supervision Supplies Cost of machines Machine groups A B Sh. 6000 Sh. 000 5,400 4.100 5,170 4,720 1,200 800 32.000 24,000 ? Sh. '000 2,600 3,630 200 10,000 Sh. 000 1,200 3,160 400 18,000 13,300 16,680 2,600 84.000 Machine maintenance hours Number of direct workers Total number of workers Floor space (square feet) Machine running hours Machine power rating (kilowatts) 3.000 6 26 3.000 30 55.000 2,000 6 34 2,400 60 27,000 4.000 2 15 1,600 25 8.000 1,000 2 10 1,000 10 15,000 10.000 16 85 8,000 125 105,000 Required: (a) Machine hour overhead absorption rate for each of the four groups of machines.(9 Marks) (6) The overhead cost to be absorbed by product Lati if: 0 It utilizes the following time resources of the indicated machine groups; Hours Machine group o ? 3 B c D (3 Marks) Direct labour cost is Sh. 22,000,000 and the direct wages percentage method is used. (3 Marks)

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