Star Electronics Ltd calculates its predetermined overhead rate on a quarterly basis. The following estimates were made for next year:

The firm main product, part number A200, requires $200 of direct material and 20 hours of direct labour per unit. The labour rate is $30 per hour.
Required:
1. Construct an Excel' spreadsheet to:
(a) Calculate the firm's quarterly predetermined overhead rate for each quarter of next year
(b) Determine the cost of one unit of part number A200 if it is manufactured in:
(i) January.
(ii) April.
2. Suppose the company's pricing policy calls for a 10 per cent markup on cost. Use your spreadsheet to calculate the price to be charged for a unit of part number A200 if it is produced in:
(a) January.
(b) April.
3. Use your spreadsheet to calculate the company's predetermined overhead rate for next year rate is calculated annually.
4. Based on your answer to requirement 3 what is the cost of a unit of part number A200 if it is manufactured in:
(a) January?
(b) April?
5. What is the price of a unit of part number A200 if the predetermined overhead rate is calculated annually?
6. Which approach would you recommend to management-quarterly overhead rates or an annual rate? Explain your answer.

Transcribed Image Text:

Estimated manufacturing overhead $200 000 160 000 100 000 140 000 Estimated direct labour hours 25 000 16 000 12 500 Quarterly predetermined overhead rate (per direct labour hour) ? First quarter Second quarter Third quarter Fourth quarter 14 000 $600 000 67 500 Total