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Production overheads will be incurred in the production of the new desks and the following data has been ascertained from two recent months in the factory:
Total Production overhead Total Assembly labour
Hours
Month 1 $148800 19000
Month 2 $168000 23000Fixed production overheads are absorbed on an assembly hour basis based on the normal activity levels. On average there are 20000 assembly hours worked per month. (Each desk takes 45 minutes to produce)
What are the total overheads per desk that James Limited should include in their costing for the desk
Please Sir is this a high/low question and why is the answer 5.76
It is high/low, together with absorption costing.
I assume you have managed the high/low part OK and have therefore calculated the variable overheads at $4.80 per hour and the fixed overheads as $57,600.
The fixed overheads are absurd on the basis of normal activity levels and are therefore absurd as $57,600/20,000 = $2.88 per hour.
This gives total overheads of 4.80 + 2.88 = $7.68 per hour.
Each desk takes 45 minutes, so the overheads per desk = 45/60 x $7.68 = $5.76
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