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Job Costing McCormack Ltd has three departments – Processing, Assembly and Finishing - Leaving Cert Accounting - Question 8 - 2009
Question 8
Job Costing McCormack Ltd has three departments – Processing, Assembly and Finishing. The following costs relate to 2008. Indirect Materials € 360,000 Indirect Lab... show full transcript
Worked Solution & Example Answer:Job Costing McCormack Ltd has three departments – Processing, Assembly and Finishing - Leaving Cert Accounting - Question 8 - 2009
Step 1
Calculate the overhead to be absorbed by each department stating clearly the basis of apportionment.
Answer
To determine the overhead absorbed by each department, we can use the basis of apportionment which includes factors like machine hours, floor space, and number of employees.
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Indirect Materials: Allocated based on the number of employees.
- Processing: €360,000 * (80,000 / 140,000) = €205,714
- Assembly: €360,000 * (35,000 / 140,000) = €64,286
- Finishing: €360,000 * (25,000 / 140,000) = €51,000
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Indirect Labour: Allocated based on machine hours.
- Processing: €170,000 * (20,000 / 42,000) = €80,952
- Assembly: €170,000 * (12,000 / 42,000) = €48,571
- Finishing: €170,000 * (10,000 / 42,000) = €40,476
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Machine Maintenance: Allocated based on machine hours.
- Processing: €80,000 * (20,000 / 42,000) = €38,095
- Assembly: €80,000 * (12,000 / 42,000) = €28,571
- Finishing: €80,000 * (10,000 / 42,000) = €19,048
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Plant Depreciation: Allocated based on volume.
- Processing: €300,000 * (8,000 / 15,000) = €160,000
- Assembly: €300,000 * (5,000 / 15,000) = €100,000
- Finishing: €300,000 * (3,000 / 15,000) = €60,000
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Light and Heat: Allocated based on floor space.
- Processing: €120,000 * (8,000 / 15,000) = €64,000
- Assembly: €120,000 * (5,000 / 15,000) = €40,000
- Finishing: €120,000 * (3,000 / 15,000) = €24,000
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Rent and Rates: Allocated based on floor space.
- Processing: €64,000 * (8,000 / 15,000) = €34,133
- Assembly: €64,000 * (5,000 / 15,000) = €21,333
- Finishing: €64,000 * (3,000 / 15,000) = €12,800
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Factory Canteen: Allocated based on number of employees.
- Processing: €50,000 * (80,000 / 140,000) = €28,571
- Assembly: €50,000 * (35,000 / 140,000) = €12,500
- Finishing: €50,000 * (25,000 / 140,000) = €8,929
After calculating the allocation for each department, we would sum these amounts to find the total overhead for Processing, Assembly, and Finishing.
Step 2
Calculate a suitable overhead absorption rate for each department.
Answer
To calculate the suitable overhead absorption rates:
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For Processing:
- Total budgeted overheads = €634,000
- Budgeted machine hours = 40,000 hours
- Overhead absorption rate per machine hour =
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For Assembly:
- Total budgeted overheads = €309,500
- Budgeted machine hours = 35,000 hours
- Overhead absorption rate per machine hour = ext{Rate} = rac{309,500}{35,000} = €8.84
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For Finishing:
- Total budgeted overheads = €208,500
- Budgeted machine hours = 25,000 hours
- Overhead absorption rate per machine hour = ext{Rate} = rac{208,500}{25,000} = €8.34
Step 3
Calculate the selling price of Job No. 510.
Answer
To calculate the selling price of Job No. 510:
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Direct Materials:
- Total direct materials = €10,000 + €2,400 = €12,400
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Labour:
- Total direct labour cost = €2,400
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Overheads:
- Processing overhead = 60 hours * €15.85 = €951.00
- Assembly overhead = 90 hours * €8.84 = €795.60
- Finishing overhead = 12 hours * €8.34 = €100.08
- Total overheads = €951.00 + €795.60 + €100.08 = €1,846.68
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Total Production Cost:
- Total cost = Direct Materials + Direct Labour + Overheads = €12,400 + €2,400 + €1,846.68 = €16,646.68
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Profit Calculation:
- Desired profit = 25% of total cost = 0.25 * €16,646.68 = €4,161.67
- Selling Price = Total Production Cost + Profit = €16,646.68 + €4,161.67 = €20,808.35
Step 4
Explain what is meant by a step fixed cost and give an example.
Answer
Step fixed costs are costs that remain fixed within a certain level of activity but will increase to a new level if the activity exceeds that range. These costs do not change with production volume in small ranges but jump when a threshold is crossed.
Example: Suppose a factory has a fixed rent expense that covers up to 500 square meters of production space. If production increases and requires 600 square meters, the rent increases to a new fixed rate, reflecting the larger space needed.
Step 5
Outline two differences in focus between Management and Financial accounting.
Answer
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Focus on Future vs Past:
- Management accounting is primarily focused on future planning and decision-making, providing information for budgets and forecasts.
- Financial accounting is concerned with historical data, ensuring compliance and reporting on past financial performance through financial statements.
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Internal vs External Users:
- Management accounting reports are designed for internal management use, targeting specific managerial decisions and strategies.
- Financial accounting prepares statements for external users, such as investors and creditors, following standard regulations and norms.