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I need help with this question, a breakdown explanation would be great.
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Aji pali Co is a small jobbing company. Budgeted direct labour hours for the current year were 45,000 hours and budgeted direct wages costs were $180,000.Job number 34679, a rush job for which overtime had to be worked by skilled employees, had the following production costs.
Direct materials $2000
Direct wages:
Normal rate (400 hrs) $2,000
Overtime premium. $500Production overhead. $4000
_________
$8,500Production overhead is based on a direct labour hour rate.
If production overhead had been based on a percentage of direct wages costs instead, the production cost of job number 34679 would have been:
o $5,500
o $10,250
o $9,000
o $10,750
(2 marks)I am puzzled that you are asking this because presumably you are using a Revision Kit from one of the ACCA Approved Publishers (which you certainly must be doing), in which case you would already have an answer and the workings for it 🙂
Currently the overheads is absorbed on labour hours. So the absorption rate is $10 per hours and the total budgeted overheads are therefore 45,000 x $10 = $450,000.
If we absorb instead as a % of the direct wages, then it is 450,000/180,000 = 250% of direct wages.
Therefore the amount absorbed into the job will be 250% x 2,500 = $6,250
So the total cost will be $10,750
Thank you so much Mr.John Moffat, I could not understand the answer provided by the BBP Text Book, you explained it so much better, thank you.
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