Overhead analysis and calculation of product costs
A furniture-making business manufactures quality furniture to customers’ order. It has three production departments and two service departments.
Budgeted overhead costs for the coming year are as follows:
|
Total (£) |
|
|
Rent and Rates |
12 800 |
|
Machine insurance |
6 000 |
|
Telephone charges |
3 200 |
|
Depreciation |
18 000 |
|
Production Supervisor’s salaries |
24 000 |
|
Heating, lighting |
6 400 |
|
70 400 |
The three production department – A, B and C, and the two service department – X and Y, are housed in the new premises, the details of which, together with other statistics and information, are gives below.
|
Departments |
|||||
|
A |
B |
C |
X |
Y |
|
|
Floor area occupied (sq. metres) |
3000 |
1800 |
600 |
600 |
400 |
|
Machine value (£1000) |
24 |
10 |
8 |
4 |
2 |
|
Direct labour hrs budgeted |
3200 |
1800 |
1000 |
||
|
Labour rates per hour |
£3.80 |
£3.50 |
£3.40 |
£3.00 |
£3.00 |
|
Allocated Overheard: |
|||||
|
Specific to each department (£000) |
2.8 |
1.7 |
1.2 |
0.8 |
0.6 |
|
Service Department X’s |
|||||
|
costs apportioned |
50% |
25% |
25% |
||
|
Service Department Y’s |
|||||
|
costs apportioned |
20% |
30% |
50% |
||
Required:
(a) Prepare a statement showing the overhead cost budgeted for each department, showing the basis of apportionment used. Also calculate suitable overhead absorption rates.
(b) Two pieces of furniture are to be manufactured for customers. Direct costs are as follows:
|
Job 123 |
Job 124 |
|
|
Direct Material |
£154 |
£108 |
|
Direct Labour |
20 hours Dept A |
16 hours Dept A |
|
12 hours Dept B |
10 hours Dept B |
|
|
10 hours Dept C |
14 hours Dept C |
Calculate the total costs of each job.
(c) If the firm quotes prices to customers that reflect a required profit of 25% on selling price. Calculate the quoted selling price for each job.
(d) If material costs are a significant past of total costs in a manufacturing company, describe a system of material control that might be used in order to effectively control costs, paying particular attention to the stock control aspect.
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