Absorption Costing: Tember Ltd., a small jobbing company, has the following budgeted costs for the coming year: € Direct materials 158,000 Direct labour 56,000 Factory overheads 84,000 For the coming year the company has also budgeted 7,000 labour hours and 12,000 machine hours. The details of a customer's job number 624 are as follows: Direct materials €10,000 Direct labour hours 170 hours Machine hours 250 hours You are required to calculate: a) The overhead absorption rate per machine hour. b) The overhead absorption rate per direct labour hour. c) The cost of job number 624 using the overhead absorption rate per machine hour. d) The cost of job number 624 using the overhead absorption rate per direct labour hour. e) The selling prices of job number 624 to the customer using both overhead absorption rates (as calculated in (a) and (b) above) and assuming a mark-up of 25% on cost.

Leaving Cert Accounting Costing-Absorption: Absorption Costing: Tember Ltd.

Absorption Costing: Tember Ltd., a small jobbing company, has the following budgeted costs for the coming year: € Direct materials 158,000 Direct labour 56,000 Factory overheads 84,000 For the coming year the company has also budgeted 7,000 labour hours and 12,000 machine hours - Leaving Cert Accounting - Question 8 - 2005

Question 8

Absorption Costing: Tember Ltd., a small jobbing company, has the following budgeted costs for the coming year: € Direct materials 158,000 Direct labour 56,000 Fac... show full transcript

Worked Solution & Example Answer:Absorption Costing: Tember Ltd., a small jobbing company, has the following budgeted costs for the coming year: € Direct materials 158,000 Direct labour 56,000 Factory overheads 84,000 For the coming year the company has also budgeted 7,000 labour hours and 12,000 machine hours - Leaving Cert Accounting - Question 8 - 2005

Step 1

The overhead absorption rate per machine hour.

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Answer

To calculate the overhead absorption rate per machine hour, use the formula:

ext{Overhead Absorption Rate per Machine Hour} = \frac{\text{Total Factory Overheads}}{\text{Total Machine Hours}}

Substituting the values:

= \frac{84,000}{12,000} = €7

Step 2

The overhead absorption rate per direct labour hour.

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Answer

To find the overhead absorption rate per direct labour hour, employ the formula:

\text{Overhead Absorption Rate per Labour Hour} = \frac{\text{Total Factory Overheads}}{\text{Total Labour Hours}}

Using the given data:

= \frac{84,000}{7,000} = €12

Step 3

The cost of job number 624 using the overhead absorption rate per machine hour.

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Answer

To calculate the cost of job number 624 using the overhead absorption rate per machine hour, compute:

Direct Materials: €10,000
Direct Labour: For 250 machine hours:
$250 \text{ hours} \times €7 = €1,750$
Total Cost:
$= 10,000 + 1,750 = €11,750$

Step 4

The cost of job number 624 using the overhead absorption rate per direct labour hour.

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Answer

Using the direct labour overhead absorption rate to determine the cost of job number 624:

Direct Materials: €10,000
Direct Labour: For 170 direct labour hours:
$170 \text{ hours} \times €12 = €2,040$
Total Cost:
$= 10,000 + 2,040 = €12,040$

Step 5

The selling prices of job number 624 to the customer using both overhead absorption rates.

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Answer

To determine the selling price of job number 624 with a 25% mark-up, first calculate:

Cost using machine hours absorption: €11,750
$Selling Price = 11,750 \times (1 + 0.25) = 14,687.50$
Cost using labour hours absorption: €12,040
$Selling Price = 12,040 \times (1 + 0.25) = 15,050$

The overhead absorption rate per machine hour.

The overhead absorption rate per direct labour hour.

The cost of job number 624 using the overhead absorption rate per machine hour.

The cost of job number 624 using the overhead absorption rate per direct labour hour.

The selling prices of job number 624 to the customer using both overhead absorption rates.

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