Question

The following information for the year 2019 is provided by Tromben Ltd:

Total sales revenue	$5,200,000
Direct labour hours	100 000 hours
Machine hours	80 000 hours
Costs:
Depreciation: factory equipment	$280,000
Depreciation: factory building	$616,000
Depreciation: administration equipment	$60,000
Direct materials	$500,000
Factory electricity	$130,000
Sales commission (5% sales revenue)	$260,000
Indirect labour	$300,000
Machine and maintenance repairs	$78,000
General administration	$120,000
Direct labour	$2,000,000
Interest	$20,000
Lubricants and cleaning materials factory	$10,000
Rent marketing and sales office	$12,000
Other miscellaneous production costs	$24,000
Quality control costs	$30,000

Question 1 – Identification of types of costs

From the information provided, calculate the following costs:

Total direct costs
Total overhead costs
Total manufacturing costs
Total non-manufacturing costs
Total full costs
Labour rate ($/DLH)

Question 2 – Calculation of OH rates

Assume Tromben Ltd increased the total indirect costs to $1,572,000.

Calculate the total overhead rates using:

1. DL hours as the cost driver
2. Machine hours as the cost driver

Rate based on DL hours	Rate based on machine hours

Question 3 – Calculation of cost and price charged for a job

The company has received an inquiry about a sophisticated product which is estimated to take 84 direct labour hours and 12 machine hours. This product requires two components at a cost of $80 each plus other materials costing $140.

Required:

1. What would be the cost of this job, AND
2. What would be the price (charge to the client) if the firm applies 75% mark-up on cost:

DL hours as cost driver	Machine hours as cost driver
Price =.	Price =

• Assuming the firm used DL hours as the cost driver
• Assuming the firm used machine hours as the cost drive

3. Why are the prices charged to the customer for the same product different? Explain in one sentence.

Answer 1