Reference no: EM132465973

Kwong Tin Company (KT) makes mugs. It has two production departments: Department One and Department Two. A pre-determined overhead rate is used in applying manufacturing overhead to the mugs. Department One overhead is to be applied on the basis of direct labour hour. Department Two overhead is to be applied on the basis of machine hour.
The 2019 budget is extracted as follows:

Supervisors' and manager's salary Rent and rates

Electricity and insurance

Machines and equipment depreciation

Machine hours Direct labour hours

Production Administration Department Department

Production Department One

1,200,000 1,800,000 300,000 330,000

Production Department One

(Hours) 100,000 200,000

Two $$

1,600,000 3,200,000 500,000 1,900,000

1,000,000 300,000 50,000 150,000

Production Department Two

(Hours) 360,000 90,000

Moreover, the following costs are budgeted to make ONE piece of standard mug: Production Production

Department One Department Two $

Direct materials

Wages of production workers Direct expenses

Machine hours used

Direct labour hours used

The unit selling price of standard mug is $45.

1.5 3.0 0.5

6 minutes 12 minutes

0.5 3.5 1.0

0.5 hour 0.1 hour

In January 2019, KT made and sold 2,000 pieces of special mugs for the customer Swan Company at $75 each (job order S1501) through an overseas agent, Mid Company. The special mugs were printed with famous brand logo. Department One needed to pay royalty fee $2 per unit and spend 20 minutes to make one special mug instead. KT also needed to pay commission of $0.5 for each special mug to Mid Company, in addition to the fixed monthly service fee $1,000.