Reference no: EM132992643

Office Works Factory (OWF) Ltd. manufactures multiple products (e.g., various types of office chairs, document holding shelves, monitor stands and tables etc.) and uses a job-costing system with two direct-cost categories (direct materials and direct production labour) for each product and one production overhead cost pool for all products.

OWF provides the following budgeted costs information for the whole factory for all jobs:

Budget for 2021

Direct materials costs$2 250000

Direct production labour costs$1 700 000

Production overhead costs$4 760 000

OWF uses budgeted direct labour costs as the basis for allocating its production overhead costs.

Required:

Problem (a) Why does OWF use direct labour costs as the basis for allocating its factory overhead costs to various jobs?

Problem (b) It is September 16, 2021 today. A customer wants to buy 300 of OWF's directors' chairs and has requested OWF to quote a price per chair within next 30 minutes. Will it be possible for the OWF to adopt actual costing for determining costs of its chairs for quoting the price? Explain.