In: Accounting
Custom Clothing Ltd is a manufacturer of pieces of clothing ordered by customers in their own design. The minimum number of pieces to accept an order is 80 pieces. The following information for the year 2019 is provided by this company:
Total production and sales (number of pieces) |
80,000 pieces |
Total direct labour hours |
100,000 |
Total machine hours |
60,000 |
Costs: |
|
Marketing |
$2,400,000 |
Machine and maintenance repairs |
$860,000 |
Depreciation of sewing machines |
$32,000 |
Depreciation of factory building |
$18,000 |
Depreciation of administration equipment |
$8,000 |
Total cost of direct materials |
$720,000 |
Cleaning materials factory |
$6,000 |
Interest |
$2,100 |
Total cost of direct labour |
$1,800,000 |
Indirect labour |
$1,400,000 |
Factory electricity |
$650,000 |
Administration |
$1,800,000 |
Other indirect costs |
$520,000 |
From the information provided, calculate the following costs:
Total direct costs |
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Total overhead costs |
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Total manufacturing costs |
Calculate the total overhead rates (round to 2 decimal places) using:
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The company has received an order for 200 pieces of clothing designed by the customer. It is estimated the order will take 240 direct labour hours (DLH) and 140 machine hours (MH). The company applies 60% mark-up on cost.
Direct labour hours as the cost driver |
Number of pieces produced as the cost driver |
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Price =
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Price = |
Question 1 | ||
A. Total Direct Cost | $2,520,000.00 | |
B. Total Overheads cost | $7,696,100.00 | |
C.Total Manufacturing Cost | $6,006,000.00 | |
Working | ||
Calculation of cost | ||
Direct Material | $720,000.00 | |
Direct Labor | $1,800,000.00 | |
A. Total Direct Cost | $2,520,000.00 | |
B. Manufacturing Overhead | ||
Depreciation Factory Equipment | $32,000.00 | |
Depreciation Factory Building | $18,000.00 | |
Factory Electricity | $650,000.00 | |
Indirect Labor | $1,400,000.00 | |
Machine and Maint Repair | $860,000.00 | |
Cleaning Material Factory | $6,000.00 | |
Other Indirect Cost | $520,000.00 | |
Total Manufacturing Overhead (Total -B) | $3,486,000.00 | |
C Non-Manufacturing overheads | ||
Depreciation Admin Equipment | $8,000.00 | |
General Administration | $1,800,000.00 | |
Interest | $2,100.00 | |
Marketing | $2,400,000.00 | |
Total( C ) | $4,210,100.00 | |
Total Manufacturing Cost(A+B) | $6,006,000.00 | |
Total Overheads cost (B+C) | $7,696,100.00 | |
Question 2 | ||
a. Rate based on direct labour hours | $76.96 | |
b. Rate based on number of pieces produced | $96.20 | |
Working | ||
Overhead Cost(a) | $7,696,100.00 | |
Direct Labor Hours(b) | 100000 | |
No of Piece Produced(c ) | 80000 | |
Based on DL hours(a/b) |
76.96 | |
Based on No of Piece Produced (a/c) | $96.20 | |
Sollution 3 | ||
Price of goods | ||
Direct labour hours as the cost driver | $40,304.64 | |
Number of pieces produced as the cost driver | $40,576.00 | |
Working | ||
computation of cost and price (on the basis of direct labour hours) | ||
Particulars | Amount | Working |
Direct Materail | $2,400.00 | |
Direct Labour | $4,320.00 | (240*18) |
Overheads cost | $18,470.40 | (240*76.96) |
Total Cost | $25,190.40 | |
Add:-Mark up(60% on Cost) | $15,114.24 | |
Price of goods | $40,304.64 | |
Sollution 3(b) | ||
computation of cost and price (on the basis of number of pieces produced) | ||
Particulars | Amount | Working |
Direct Materail | $1,800.00 | (200*$9) |
Direct Labour | $4,320.00 | (240*18) |
Overheads cost | $19,240.00 | (200*96.20) |
Total Cost | $25,360.00 | |
Add:Mark up(60% on Cost) | $15,216.00 | |
Price of goods | $40,576.00 | |
Note-1 | ||
Labor Rate: | ||
Direct Labor(a) | $1,800,000.00 | |
Direct Labor Hours(b) | 100000 | |
Labor Rate(a/b) | $18.00 | |
Note-2 | ||
Direct Material per unit | ||
Direct Material (a) | $720,000.00 | |
number of pieces produced)(b) | 80000 | |
Direct Material per unit (a/b) | $9.00 |