Reference no: EM13553753

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.