Question

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

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

Direct labour cost $125,000

Direct material cost $150,000

Production overhead $67,800

Required:

(7A) Calculate the production overhead absorption rate predetermined for the period based on :

1. Percentage of direct material cost;
2. Direct labour hours

(7B) Two pieces of furniture are to be manufactured for customers. Direct costs are as follows:

Job 400                                                            Job 401

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:

(7C)     Calculate the total costs of each job using all the two bases in question (7A) above.

(7D) 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

Answer :

(7A)(1)  Computation of  production overhead absorption rate based on Percentage of direct material cost

= production overhead*100/ Direct material cost

= $ 70400*100 / $ 125000

= 56.32 % of Direct material cost

(7A)(2) Computation of  production overhead absorption rate based on Direct labor hour

= Production overhead / Budgeted direct labor hour

= $ 70400 / 60000 hour

= $ 1.17 ( approx up to 2 decimal place )

(7C)     Computation of  total costs of each job using all the two bases in question (7A) above.

	Total cost as per Direct material cost	Total cost as per Direct labor hour
	Job 400	Job 401	Job 400	Job 401
Direct Material	$ 15400	$ 10800	$ 15400	$ 10800
Direct labor
Dep -A	$ 3360 ( 210*16 )	$ 3200 ( 160*20)	$ 3360	$ 3200
Dep - B	$ 1440 ( 120*12)	$ 1800 ( 100*18)	$ 1440	$ 1800
Dep - C	$ 1400 ( 100*14)	$ 1400 ( 140*10)	$ 1400	$ 1400
Production overhead	$ 8673.28 ( 15400*56.32%)	$ 6082.56 ( 10800*56.32%)	$ 503.10 ( 430*1.17)	$ 468 (400*1.17)
Factory cost	$ 30273.28	$ 23282.56	$ 22103.10	$ 17668
Selling and administrative ex	$ 3027.33	$ 2328.26	$ 2210.31	$1766.80
Total cost	$ 33300.61	$ 25610.82	$ 24313.41	$ 19434.80

(7D) Computation of Selling price of each Job

	Total cost as per Direct material cost	Total cost as per Direct labor hour
	Job 400	Job 401	Job 400	Job 401

Total cost	$ 33300.61	$ 25610.82	$ 24313.41	$ 19434.80
Selling price (cost + cost *33.33%)	$ 44399.70	$ 34146.91	$ 32417.07	$ 25912.42

Working note -1

profit = 25 % on selling price

Let selling price = 100

profit = 100*25 % = 25

Cost = sales - profit

= 100 -25 = 75

Profit % on cost = 25*100/75 = 33.33 %