Absorption Costing
Blackwell Ltd, a small jobbing company, has the following budgeted figures for the coming year:
Direct Materials: €309,000
Direct Labour: €127,500
Factory Overheads: €108,000
Budgeted Direct Labour hours: 15,000 hours
Budgeted Machine hours: 9,000 hours
(a) You are required to calculate:
(i) The overhead absorption rate per Direct Labour Hour - Leaving Cert Accounting - Question 8 - 2011
Question 8
Absorption Costing
Blackwell Ltd, a small jobbing company, has the following budgeted figures for the coming year:
Direct Materials: €309,000
Direct Labour: €127,5... show full transcript
Worked Solution & Example Answer:Absorption Costing
Blackwell Ltd, a small jobbing company, has the following budgeted figures for the coming year:
Direct Materials: €309,000
Direct Labour: €127,500
Factory Overheads: €108,000
Budgeted Direct Labour hours: 15,000 hours
Budgeted Machine hours: 9,000 hours
(a) You are required to calculate:
(i) The overhead absorption rate per Direct Labour Hour - Leaving Cert Accounting - Question 8 - 2011
Step 1
Calculate the overhead absorption rate per Direct Labour Hour
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Answer
To find the overhead absorption rate per Direct Labour Hour, divide the total budgeted factory overheads by the total budgeted direct labour hours:
extOverheadabsorptionrate=Budgeted Direct Labour hoursTotal Factory Overheads=15000108000=€7.20 per labour hour
Step 2
Calculate the overhead absorption rate per Machine Hour
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Answer
To find the overhead absorption rate per Machine Hour, divide the total budgeted factory overheads by the total budgeted machine hours:
extOverheadabsorptionrate=Budgeted Machine hoursTotal Factory Overheads=9000108000=€12.00 per machine hour
Step 3
The cost of Job No. 482 using the overhead absorption rate per Direct Labour Hour
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Answer
To calculate the total cost of Job No. 482 using the Direct Labour Hour rate:
Direct Materials: €19,000
Direct Labour: 240 hours at €7.20 per hour = €1,728
Factory Overheads: 240 hours at €7.20 per hour = €1,728
Total Cost = €19,000 + €1,728 + €1,728 = €22,456
Step 4
The cost of Job No. 482 using the overhead absorption rate per Machine Hour
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Answer
To calculate the total cost of Job No. 482 using the Machine Hour rate:
Direct Materials: €19,000
Direct Labour: 240 hours at €7.20 per hour = €1,728
Factory Overheads: 175 hours at €12.00 per hour = €2,100
Total Cost = €19,000 + €1,728 + €2,100 = €22,828
Step 5
The selling price of Job No. 482 to the customer using Labour overhead rate
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Answer
Using the cost calculated in (b), the selling price with a 25% mark-up is:
Total Cost = €22,456
Mark-up = 25% of €22,456 = €5,614
Selling Price = €22,456 + €5,614 = €28,070
Step 6
Outline two reasons why a business needs to calculate the cost price of a product
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Answer
Determine Selling Price: Calculating the cost price allows the business to set an appropriate selling price to ensure profitability.
Financial Planning: Understanding the cost structure helps in budgeting and financial forecasting, allowing the business to manage its resources effectively.
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