Fencing Ltd, a small jobbing company, has the following budgeted figures for the coming year: Direct materials €420,000 Direct labour €134,400 Factory overheads €120,000 Budgeted direct labour hours 16,000 hours Budgeted machine hours 8,000 hours (a) You are required to calculate: (i) The overhead absorption rate per direct labour hour - Leaving Cert Accounting - Question 8 - 2017

For the overhead absorption rate per machine hour, use the formula:

The cost of Job No. 562 using the overhead absorption rate per machine hour can be calculated as follows:

• Direct Materials: €20,000

• Direct Labour (260 hours at €7.50/hour):

  $$260 \text{ hours} \times €7.50 = €1,950$$

• Factory Overheads (170 hours at €15/hour):

  $$170 \text{ hours} \times €15 = €2,550$$

Total Cost for Job No. 562:

Using the overhead absorption rate per direct labour hour, the calculation is:

• Direct Materials: €20,000

• Direct Labour (260 hours at €7.50/hour):

  $$260 \text{ hours} \times €7.50 = €1,950$$

• Factory Overheads (260 hours at €7.50/hour for direct labour):

  $$260 \text{ hours} \times €7.50 = €1,950$$

Total Cost for Job No. 562:

To determine the selling price, first calculate the cost of Job No. 562:

Total Cost: €24,500 (from previous calculations)

Assuming a mark-up of 20%, the selling price can be calculated as:

1. Profitability Analysis: Calculating the cost price allows a business to determine if the selling price is sufficient to cover costs and generate profit.

2. Pricing Decisions: Knowledge of production costs informs pricing strategies, helping businesses remain competitive while ensuring profitability.