Reference no: EM132598091

Nanda Ceramics Company manufactures three products M, N and O. The direct costs of three products are shows as below:

Information / product                                    M                          N                        O

Budgeted annual production (units)             60,000              96,000          80,000

Direct Materials                                    140$/unit              180$/unit      120$/unit

Direct Labour ($ 20 per hour)                    160$/unit            120$/unit     200$/unit

In addition to the above direct costs, the company incurs annual indirect production cost of $ 4,176,000. Overheads were allocated to product based on number of direct labor hours

Question 1: Compute the Total Amount of Direct Labour Hours used for making products M, N and O

Question 2: Compute the Overhead Absorption Rate (i.e. Total Overheads / Total Direct Labour Hours)

Question 3: Compute the Total Cost Per Unit for products M, N and O (Materials + Labour + Overheads)

Question 4: Explain briefly why over/under absorption of overheads occur? Provide examples to substantiate your answer