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Job Costing

This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.

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June 9, 2015 at 10:29 am #255478
Deborah Ndung’u
Member
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Hi. I am having an issue in determining the cost to be absorbed. This is from the CBE mock exam and no workings are available.
A business operates a job costing system and has the aim of making a net profit of 30% of net sales. Cost estimates for one particular job are as follows:
Direct materials 80 Kg at $5 per kg
Direct Labour: 40 hours at $6 per hour
The total overheads are budgeted at $120,000 and are absorbed on the basis of direct labour hours. The budgeted labour hours are 50,000.
What price should be quoted for this job (to the nearest $)?
June 9, 2015 at 12:24 pm #255507
John Moffat
Keymaster
- Topics: 57
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The overhead absorption rate must be 120,000 / 50,000 = $2.40 per labour hour.
The costs are therefore:
Materials 80 x $5 = 400; Labour 40 x $6 = 240; Overheads 40 x $2.40 = $96
Total = 400 + 240 + 96 = 736
Therefore selling price = 100/70 x 736 = $1,051
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