Shown below is an extract from next year’s budget for a company manufacturing three different products in three production departments.

The skilled operatives employed in the Cutting Department are paid £4 per hour and the unskilled operatives are paid £2.50 per hour. All the operatives in the Machining and Pressing Departments are paid £3 per hour.

The company operates a full absorption costing system.
Required:

(a) Calculate, as equitably as possible, the total budgeted manufacturing cost of:
(i) one completed unit of Product A, and (ii) one incomplete unit of Product B, which has been processed by the Cutting and Machining Departments but which ‘has not yet been passed into the Pressing Department.

(b) At the end of the first month of the year for which the above budget was prepared the production overhead control account for the Machining Department showed a credit balance. Explain the possible reasons for that credit balance.

Transcribed Image Text:

Product Production Direct Material Cost Direct Labour Requirements: Cutting Department: Skilled operatives Unskilled operatives Machining Department Pressing Department A 4 000 units B 3 000 units 4 per unit hours per unit 7 per unit hours per unit 3 6 1 t 5 3 C 6 000 units 9 per unit hours per unit 2 3 $ 4 Machine Hour Requirements: Machining Department 2 1 21