Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Basil Ltd You have been asked to suggest a method of deducing the full cost of various production orders of Basil Ltd
Basil Ltd You have been asked to suggest a method of deducing the full cost of various production orders of Basil Ltd. This method will be used as a basis for setting prices. The production orders vary greatly in size and nature from one to the next The following information has been taken from the budget for the forthcoming financial year: Direct labour Direct materials Overheads £400,000 £100,000 £450,000 Direct materials Direct labour hours Machine hours 10,000 kg 50,000 hours 45,000 hours The business is not departmentalised for accounting purposes. All direct labour is paid the same hourly rate. Basil Ltd has currently received a new order which has the following costs: Direct materials 450 kg Direct labour hours 2,000 hours Machine hours 500 hours Required: (a) Prepare full costings for new order using the following methods allocating total overheads: - Overhead rate based on labour hour basis - overhead rate based on machine hour basis (b) State briefly which of the two bases of overheads you prefer and why.
a) Full costing based on overhead rate based on labor hours:
a) Full costing based on overhead rate based on machine hours:
Workings:
b) It seems labor Hour Rate Distribution of Overhead is better than Machine Hour rate. As the labor hours seems to be a higher cost and it is more relevant. Machine hours are lower and total cost seems to be lower. It may not cover the Actual cost.But a final decision can be made when actual cost is known.
