Bookdon plc manufactures three products, X, Y and Z, in two production departments: a machine shop and a fitting section; it also has two service departments: a canteen and a machine maintenance section. Shown below are next year’s planned production data and manufacturing costs for the business.

X Y Z Production 4,200 units 6,900 units 1,700 units Direct materials £11/unit £14/unit £17/unit Direct labour:

Machine shop £6/unit £4/unit £2/unit Fitting section £12/unit £3/unit £21/unit Machine hours 6 hr/unit 3 hr/unit 4 hr/unit 10.5 369 CHAPTER 10 FULL COSTING Planned overheads are as follows:

Machine Fitting Canteen Machine Total shop section maintenance section Allocated overheads £27,660 £19,470 £16,600 £26,650 £90,380 Rent, rates, heat and light £17,000 Dep’n and insurance of equipment £25,000 Additional data:

Gross book value of equipment £150,000 £75,000 £30,000 £45,000 Number of employees 18 14 4 4 Floorspace occupied 3,600 sq m 1,400 sq m 1,000 sq m 800 sq m All machining is carried out in the machine shop. It has been estimated that approximately 70% of the machine maintenance section’s costs are incurred servicing the machine shop and the remainder servicing the fitting section.

Required:

(a) Calculate the following planned overhead absorption rates:

(i) A machine hour rate for the machine shop.

(ii) A rate expressed as a percentage of direct wages for the fitting section.

(b) Calculate the planned full cost per unit of Product X.

Shown below is an extract from next year’s plans for a business manufacturing three products, A, B and C, in three production departments.

A B C Production 4,000 units 3,000 units 6,000 units Direct material cost £7/unit £4/unit £9/unit Direct labour requirements:

Cutting department:

Skilled operatives 3 hr/unit 5 hr/unit 2 hr/unit Unskilled operatives 6 hr/unit 1 hr/unit 3 hr/unit Machining department 1/2 hr/unit 1/4 hr/unit 1/3 hr/unit Pressing department 2 hr/unit 3 hr/unit 4 hr/unit Machine requirements:

Machining department 2 hr/unit 11/2 hr/unit 21/2 hr/unit The skilled operatives employed in the cutting department are paid £16 an hour and the unskilled operatives are paid £10 an hour. All the operatives in the machining and pressing departments are paid £12 an hour.

10.6 370 EXERCISES Production departments Service departments Cutting Machining Pressing Engineering Personnel Planned total overheads £154,482 £64,316 £58,452 £56,000 £34,000 Service department – costs incurred for the benefit of other departments:

Engineering services 20% 45% 35% – –

Personnel services 55% 10% 20% 15% –

The business operates a full absorption costing system.

Required:

Derive the total planned cost of:

(a) One completed unit of Product A.