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Dear tutor,
If I have a question where I need to calculate total factory costs and i am given factory overheads and labour budget for the year, why the total factory costs should be calculated as factory overheads + labour budget and not factory costs + actual labour costs for product in question (this is also given in the practice question).
Thank you
Ana PavlovicIt really depends on the exact wording of the question (and if it is a past exam question or a question in the current edition of the BPP Revision Kit, then tell me which one).
However, I can guess what the probably explanation for your question is 🙂
Remember that we assume that all costs apart from materials are fixed in the short term.
Therefore if we budget on (say) a total of $100,000 for labour then we assume that the total labour cost will stay at $100,000 even if the levels of production change from budget.I do show and explain this situation in the example I work through in my free lectures on this.
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