Reference no: EM132293414
Question 1:
You have been asked to suggest a method for reducing PartmasterLtd's full cost of various production orders, which will be used as a basis for setting prices. The following information comes from the budget for the forthcoming financial year:
| Direct Labour hours |
100,000 hours |
| Machine hours |
90,000 hours |
|
|
| Manufacturing cost: |
|
| Direct materials |
$500,000 |
| Direct labour |
$1,500,000 |
| Indirect labour |
$250,000 |
| Electricity |
$100,000 |
| Factory heating and light |
$10,000 |
| Machinery repair and maintenance |
$95,000 |
| Machinery lubricants and factory cleaning materials |
$15,000 |
| Machinery |
$1,005,000 |
| Depreciation: Machine |
$325,000 |
| Total cost |
$3,800,000 |
Note: The business is not departmentalized for accounting purposes.
All direct labor is paid at the same hourly rate.
You are required to;
A. Calculate two feasible overhead rates for the year.
B. Prepare full costing for order number: A0789 using of the rates you have calculated in Question A, that is two types of costing methods. Following is the cost sheet for order number A0789.
| Raw materials |
$12,500 |
| Direct Labour hours |
4000 hours |
| Machine hours |
1,900 hours |
Question 2:
The following data is summerised from a performance report of IPM Ltd for June, during which 10,700 units were produced. The budget reflects the company normal capacity of 10,000 units:
|
Budgeted costs |
Actual costs (10,700 units) |
Variance over budget (under) |
|
(10,000 units) |
|
|
| Raw materials |
$35,000 |
$36,100 |
$1,100 |
| Direct labour |
$70,000 |
$70,300 |
$300 |
| Factory overhead: Fixed |
$18,000 |
$18,700 |
$700 |
| Variable |
$24,000 |
$23,600 |
($400) |
| Total cost |
$147,000 |
$148,000 |
|
a. What is the general implication of the performance report?
b. Why might the manager question the significance of the report?
c. Revise the performance report using flexible budgeting you have learnt and comment on the general implication of a flexible budget.