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.
Ask the Tutor ACCA MA
Chapter 7 test questions 4 and 5
11y ago#1Question 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.
11y ago#2Question 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.
11y ago#4You are welcome :-)
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