Various overhead absorption rates AC Limited is a small company which undertakes a variety of jobs for its customers.

An enquiry has been received, and the production department has produced estimates of the prime cost involved and of the hours required to complete job A57.

You are required to:

(a) calculate by different methods six overhead absorption rates; (6 marks)

(b) comment briefly on the suitability of each method calculated in (a); (8 marks)

(c) calculate cost estimates for job AS7 using in turn each of the six overhead absorption rates calculated in (a).

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Sales Cost: Direct materials Budgeted profit and loss statement for the year ending 31 December () 100 000 () 750 000 Direct wages 50 000 Prime cost 150 000 Fixed production overhead 300 000 Production cost 450 000 Selling, distribution and administration cost 160 000 610 000 Profit 140 000 Budgeted data: Labour hours for the year 25 000 Machine hours for the year 15 000 Number of jobs for the year 300