Doyle Ltd, a small jobbing company, has the following budgeting figures for the coming year: Direct materials €330,000 Direct labour €187,500 Factory overheads €120,000 Budgeted direct labour hours 15,000 hours Budgeted machine hours 12,000 hours (a) You are required to calculate: (i) The overhead absorption rate per direct labour hour. (ii) The overhead absorption rate per machine hour. The details of a customer’s Job No. 130 are as follows: Direct materials €28,000 Direct labour hours 310 hours Machine hours 190 hours (b) Calculate the cost of Job No. 130 using the overhead absorption rate per machine hour. (c) Calculate the cost of Job No. 130 using the overhead absorption rate per direct labour hour. (d) Calculate the selling price of Job No. 130 to the customer using labour overhead absorption rate (as calculated in (a) above and assuming a mark-up of 20% on cost). (e) State two reasons why a business needs to calculate the cost price of a product.

Leaving Cert Accounting Costing-Absorption: Doyle Ltd, a small jobbing compa

Doyle Ltd, a small jobbing company, has the following budgeting figures for the coming year: Direct materials €330,000 Direct labour €187,500 Factory overheads €120,000 Budgeted direct labour hours 15,000 hours Budgeted machine hours 12,000 hours (a) You are required to calculate: (i) The overhead absorption rate per direct labour hour - Leaving Cert Accounting - Question 8 - 2021

Question 8

Doyle Ltd, a small jobbing company, has the following budgeting figures for the coming year: Direct materials €330,000 Direct labour €187,500 Factory overheads €120... show full transcript

Worked Solution & Example Answer:Doyle Ltd, a small jobbing company, has the following budgeting figures for the coming year: Direct materials €330,000 Direct labour €187,500 Factory overheads €120,000 Budgeted direct labour hours 15,000 hours Budgeted machine hours 12,000 hours (a) You are required to calculate: (i) The overhead absorption rate per direct labour hour - Leaving Cert Accounting - Question 8 - 2021

Step 1

The overhead absorption rate per direct labour hour.

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Answer

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

ext{Overhead Absorption Rate} = \frac{\text{Budgeted Factory Overheads}}{\text{Budgeted Direct Labour Hours}}

Plugging in the values:

= \frac{€120,000}{15,000 \text{ hours}} = €8 \text{ per labour hour}

Step 2

The overhead absorption rate per machine hour.

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Answer

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

\text{Overhead Absorption Rate} = \frac{\text{Budgeted Factory Overheads}}{\text{Budgeted Machine Hours}}

Plugging in the values:

= \frac{€120,000}{12,000 \text{ hours}} = €10 \text{ per machine hour}

Step 3

Calculate the cost of Job No. 130 using the overhead absorption rate per machine hour.

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Answer

To calculate the cost, first, find the factory overheads based on machine hours:

\text{Factory Overheads} = 190 \text{ hours} \times €10 \text{ per hour} = €1,900

Now, add the costs together:

Direct materials: €28,000 Direct labour (310 hours at €12.50 per hour): €3,875 Factory overheads: €1,900

Thus, total cost:

\text{Total Cost} = €28,000 + €3,875 + €1,900 = €33,775

Step 4

Calculate the cost of Job No. 130 using the overhead absorption rate per direct labour hour.

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Answer

Using the overhead absorption rate per direct labour hour:

Direct materials: €28,000 Direct labour (310 hours at €12.50 per hour): €3,875 Factory overheads (310 hours at €8 per hour):

\text{Factory Overheads} = 310 \text{ hours} \times €8 = €2,480

Thus, total cost:

\text{Total Cost} = €28,000 + €3,875 + €2,480 = €34,355

Step 5

Calculate the selling price of Job No. 130 to the customer using labour overhead absorption rate.

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Answer

To find the selling price, apply a markup of 20% on the cost calculated via labour overhead absorption:

\text{Selling Price} = \text{Cost} + (\text{Cost} \times 0.20)

Where Cost is €34,355:

\text{Selling Price} = €34,355 + (€34,355 \times 0.20) = €34,355 + €6,871 = €41,226

Step 6

State two reasons why a business needs to calculate the cost price of a product.

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Answer

A business needs to determine whether the price set for a product is sufficient to cover costs and ensure profitability.
Understanding the cost price allows a business to set appropriate pricing strategies and make informed decisions regarding budgeting and financial planning.

The overhead absorption rate per direct labour hour.

The overhead absorption rate per machine hour.

Calculate the cost of Job No. 130 using the overhead absorption rate per machine hour.

Calculate the cost of Job No. 130 using the overhead absorption rate per direct labour hour.

Calculate the selling price of Job No. 130 to the customer using labour overhead absorption rate.

State two reasons why a business needs to calculate the cost price of a product.

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