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hi, I am stuck in the method used to derive the answers for these 2 questions
For question 4,
L: 8000*4 hrs=32000
M:8000*4.5 hrs= 36000
so total labour hours to produce L and M units = 68000
Total overhead costs would be 184000
so labour costs per hour per unit would be 184000/68000=2.70
in which $2.70*4.5=$ 12
which the answer would be C.
I understand that if I round up the answer from 2.70 to 3, the answer would be $3*4.5hrs=$ 13.5 which the answer would be D
However, I am rather puzzled if I should round up or not and if my workings as above is correct too.For question 5
I understand that prime cost = direct materials + direct labour = 400+ 300=$700
Non production overheads are absorbed at 120% of prime cost = $840
I am stuck at this stage where I don’t understand what the direct labour being paid $8 per hour and production overheads being absorbed at $26 per direct labour hour means since the question does not give how many hours for the job to begin with.I would greatly appreciate it if anyone could help me clear up these doubts.
Thank you.
Question 4:
You need to work out a cost per labour hour for each cost centre separately – not just an overall one.
So for X, the overheads are $88,000 and the total hours are (8,000 x 3) + (8000 x 2.5) = 44,000
So the overheads per hour for X are $88,000/44,000 = $2.Similarly, the overheads per hour for Y are 96,000/24,000 = $4
Then the cost per unit for M is 3 hours at $2 plus 2.5 hours at $4.
Question 5:
You can calculate the number of labour hours because you know how much is paid in total for labour ($400) and you know what rate per hour labour are paid ($8).
oh, I see, I mistook question 4 as a similar question to example 2 when it should have been example 3. Understood question 5 now as well. Thank you.
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