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Azure has a job order and the following data have been recorded on its job cost...

Azure has a job order and the following data have been recorded on its job cost sheet: Direct material $50,000 Direct labour hours 1,000 Direct labour wage rate $25 Machine hours 750 hours Number of units completed 800 The company applies manufacturing overhead on the basis of machine hours and the predetermined overhead rate is $20 per machine hour. Management is now considering whether this job order is profitable or not and how does this job order fare compared to the industry benchmark. Required a) Compute the unit product cost that would appear on the job cost sheet for this job. b) Using a mark-up percentage of 20% of the full product cost, how much profit/loss would this job make? c) Considering the industry benchmark for manufacturing overhead for similar jobs is 50% of direct labour, identify whether this job has a manufacturing overhead lower or higher than a similar job using the industry benchmark. Briefly explain what could cause a difference. ?

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Azure
Workings for Answer a Amount $ Note
Direct labor hours      1,000.00 A
Direct labor wage rate           25.00 B
Direct labor cost 25,000.00 C=A*B
Machine hours         750.00 D
Predetermined overhead rate           20.00 E
Overhead applied 15,000.00 F=D*E
Answer a Amount $
Direct material 50,000.00
Direct labor cost 25,000.00 See C
Overhead applied 15,000.00 See F
Total cost 90,000.00 G
Number of units         800.00 H
Cost per unit         112.50 I=G/H
Answer b Amount $
Total cost of job 90,000.00 See G
Markup % 20% J
Profit from job 18,000.00 K=G*J
Answer c Amount $
Direct labor cost 25,000.00 See C
Overhead applied 12,500.00 L=C*50%
Overhead applied- Machine hours 15,000.00 See F
Higher overhead by     2,500.00 N=F-L
Answer d
The reason for overhead cost distortion is change in activity drivers. The job uses different labor and machine hours that’s why it causes a difference.

ekkarill92 answered 2 years ago
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