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Departments: 1 and 2
Production overhead:1=$27000
2=$18000Direct material cost: 1=$67500
2=$36000Direct labour cost: 1=$13500
2=$100000Direct labour hours:1=2700
2=25000Material hours: 1=45000
2=300
Individual direct labour employees within each department earn different rates of pay, according to their skills, grade and experience.1.What is the most appropriate production overhead rate for department 1?
A. 40% of direct material cost
B. 200% of direct labour cost
C. $10 per direct labour hour
D. $0.60 per machine hourThe answer in the BPP revision kit is D(27000/45000).
2.What is the appropriate production overhead rate for department 2?
A. 50% of direct material cost
B. 18%of direct labour cost
C. $0.72 per direct labour hour
D. $60 per machine hourThe answer is C(18,000/25,000)
– The formula for OAR is:
budgeted overhead/budgeted activity levelWhy in the first question, budgeted activity level is based on machine hours and for the second question it is based on direct labour hour?
1. Because in department one, most of the work is done on machines – there are very few hours worked by labour.
2. Because in department two, most of the work is done by labour – there are very few hours on machines.
1. A company uses standard costing to value inventory. its fixed overhead absorption rate is $12 per labour hour and each unit of production should take four hours. In a recent period where there was no opening inventory of finished goods, 20,000 units were produced using 100,000 units labour hours. 18,000 units were sold. The actual profit was $ 464,000
What profit would have been earned under a standard marginal costing system?
The answer is $368,000. How to obtain the answer? ( I have used the reconciliation of profits but the answer I have obtained is wrong)2.Allocated and apportioned fixed overhead costs: Primary finishing
Direct labour minutes per unit;
-Product x 36 25
-product y 48 35Budgeted production is 6,000 units of product x and 7,500 for product y. Fixed overhead costs absorbed on a direct labour basis.
What is the budgeted fixed overhead cost per unit for product Y?
The answer is $15My workings:
-Hours worked for Y
(0.8 x 7500)+(7/12 x 7500)=10375-Therefore OAR for primary is 96,000/10375=9.25
Finishing 82,500/10375=7.95-fixed overhead is (1.8 x 9.25)+(7/12 x 7.95)=$12
My answer is $12 which is wrong. Can you please locate my mistake and show me the good answer( by the way, I do have watched your free lecture notes and it has been really helpful)
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