Absorption Costing Flint Ltd, a manufacturing company has two departments, production and servicing - Leaving Cert Accounting - Question 8 - 2019

To determine the total cost of Job No. 572, we add up all relevant costs including direct materials, direct labour, and overheads based on hours worked.

1. Direct materials: €1,350

2. Direct labour: €520

3. Production Costs:

   • Fixed Overhead: $4 \, \text{hours} \times 5 \, \text{€ per hour} = 20 \, \text{€}$
   • Variable Overhead: $4 \, \text{hours} \times 0.75 \, \text{€ per hour} = 3 \, \text{€}$
   • Total Production Overheads: 20 € + 3 € = 23 €

4. Servicing Costs:

   • Fixed Overhead: $3 \, \text{hours} \times 1.50 \, \text{€ per hour} = 4.50 \, \text{€}$
   • Variable Overhead: $3 \, \text{hours} \times 2.50 \, \text{€ per hour} = 7.50 \, \text{€}$
   • Total Servicing Overheads: 4.50 € + 7.50 € = 12 €

5. Total Cost for Job No. 572:

   • Total Cost = Direct materials + Direct labour + Production Overheads + Servicing Overheads
   • Total Cost = 1,350 € + 520 € + 23 € + 12 € = 1,905 €.

To calculate the selling price of Job No. 572, we need to first determine the cost and then apply the markup.

1. Cost of Job No. 572: 1,910 € (as calculated previously)
2. Markup Calculation:
   • Markup Amount: $1,910 imes 0.15 = 286.50 \, \text{€}$
3. Selling Price:
   • Selling Price = Cost + Markup Amount
   • Selling Price = 1,910 € + 286.50 € = 2,196.50 €.

1. Pricing Decisions: Understanding the cost price is essential for setting appropriate selling prices to ensure profitability.
2. Financial Planning: Accurate cost calculation contributes to effective budgeting and forecasting, enabling better financial management.