Question

Q2

Required: (1) Calculate the production overhead absorption rate predetermined for the period based on : i. Machine hours; ii. Direct labour hours (2) Two pieces of furniture are to be manufactured for customers. Direct costs are as follows: Job 123 Job 124 Direct material $15,400 $10,800 Direct labour 210 hours Dept. A @$16/ hour: 160 hours Dept. A @20/hour 120 hours Dept. B @$12/hour; 100 hours Dept. B @$18/hour 100 hours Dept. C @$14/hour; 140 hours Dept. C@$10/hour Selling and administrative overheads for each job are 10% of factory cost. Required: (b) Calculate the total costs of each job using all the two bases in question (1) above. (c) If the firm quotes prices to customers that reflect a required profit of 25 per cent on selling price, calculate the quoted selling price for each job.

The following data relate to a manufacturing department for a period:

Budgeted data for the coming year are as follows:

Direct labour hours 60,000 hours

Machine hours 55,000 hours

Direct labour cost $110,000

Direct material cost $125,000

Production overhead $70,400

Actual data for the period are as follows:

Direct labour hours 55,500 hours

Machine hours 40,000

Direct labour cost $125,000

Direct material cost $150,000

Production overhead $67,800

Required:

(1) Calculate the production overhead absorption rate predetermined for the period based on :

i. Machine hours;

ii. Direct labour hours

(2) Two pieces of furniture are to be manufactured for customers. Direct costs are as follows:

Job 123​​​​​Job 124

Direct material​$15,400​​​​​$10,800

Direct labour​210 hours Dept. A​@$16/ hour:​160 hours Dept. A @20/hour

​​​120 hours Dept. B @$12/hour; 100 hours Dept. B @$18/hour

​​​100 hours Dept. C @$14/hour; 140 hours Dept. C@$10/hour

Selling and administrative overheads for each job are 10% of factory cost.

Required:

(b)​Calculate the total costs of each job using all the two bases in question (1) above.

(c) If the firm quotes prices to customers that reflect a required profit of 25 per cent on selling price, calculate the quoted selling price for each job.

Answer 1

(1) (i) the Production overhead absorption rate predetermined for the period, based on machine hours = Estimated production overhead/Budgeted Machine hours the Production overhead absorption rate predetermined for the period, based on machine hours = $70,400/55,000 hours = $1.28 per machine hour (i) the Production overhead absorption rate predetermined for the period, based on Direct labour hours = Estimated production overhead/Budgeted Direct labour hours the Production overhead absorption rate predetermined for the period, based on Direct labour hours = $70,400/60,000 hours = $1.173 per direct labour hour Using Direct labour hours basis Job 123 Job 124 $15,400.00 $10,800.00 (2) (b) Using Machine hours basis Job 123 Job 124 Direct material $15,400.00 $10,800.00 Direct Labour Department A $3,360.00 $3,200.00 (210 hours * $16) (160 hours * $20) Department B $1,440.00 $1,800.00 (120 hours * $12) (100 hours *$18) Department C $1,400.00 $1,400.00 (100 hours * $14) (140 hours * $10) Total direct labour cost $6,200.00 $6,400.00 Production overhead $550.40 $512.00 (430 hours * $1.28) |(400 hours * $1.28) Total factory cost $22,150.40 $17,712.00 Selling & administrative overhead (10%) $2,215.04 $1,771.20 Total costs of each job $24,365.44 $19,483.20 $3,360.00 $3,200.00 (210 hours * $16) (160 hours * $20) $1,440.00 $1,800.00 (120 hours * $12) (100 hours *$18) $1,400.00 $1,400.00 (100 hours * $14) (140 hours * $10) $6,200.00 $6,400.00 $504.39 $469.20 (430 hours * $1.173) (400 hours * $1.173) $22,104.39 $17,669.20 $2,210.44 $1,766.92 $24,314.83 $19,436.12 In the absence of actual machine hours for the Job 123 and Job 124, total direct labour hours are considered for determining the production overhead. Total labour hours for Job 123 = 210 + 120 + 100 = 430 hours Total labour hours for Job 124 = 160 + 100 + 140 = 400 hours (c") If the firm quotes prices to customers that reflect a required profit of 25% on selling price, Selling price - profit = Total cost Selling price - 25% of selling price = Total cost 75% selling price = Total cost Selling price = Total cost/75% Using Machine hours basis Job 123 Job 124 Total costs of each job $24,365.44 $19,483.20 Selling price (Cost/75%) $32,487.25 $25,977.60 Using Direct labour hours basis Job 123 Job 124 $24,314.83 $19,436.12 $32,419.77 $25,914.83