6. Sinewy Ltd makes brackets, one of a variety of products. These products pass through several production processes. The first process is moulding and the standard costs for moulding brackets are as follows: Standard costs (E) Per unit Direct material X 7kg at 7.00 per kg 49.00 Direct labour 5 hours at 5 per hour 25.00 Overhead (fixed and variable) 5 hours at 6.60 per hour 33.00 107.00 The overhead allocation rate is based on direct labour hours and comprises an allowance for both fixed and variable overhead costs. With the aid of regression analysis the fixed element of overhead costs has been estimated at 9,000 per week, and the variable element of overhead costs has been estimated at 0.60 per direct labour hour. The accounting records do not separate actual overhead costs between their fixed and variable elements The moulding department occupies its own premises, and all of the department's overhead costs can be regarded as being the responsibility of the departmental manager. In week 25 the department moulded 294 brackets, and actual costs incurred were: Direct material X (2,030kg used) 14 125 Direct labour (1,520 hours worked) 7 854 Overhead expenditure 10 200 The 1,520 hours worked by direct labour included 40 hours overtime, this is paid at 50% above pay rates. Requirements: a) Prepare a report for the moulding department manager on the results of the moulding department for week 25, presenting information in a way which you consider to be most useful. 10 b) Discuss the treatment of overheads adopted in your report and describe an alternative treatment, contrasting its use with the method adopted in your report. 10 c) Describe the approaches used for determining standards for direct costs and assess their main strengths and weaknesses. 10 6. Sinewy Ltd makes brackets, one of a variety of products. These products pass through several production processes. The first process is moulding and the standard costs for moulding brackets are as follows: Standard costs (E) Per unit Direct material X 7kg at 7.00 per kg 49.00 Direct labour 5 hours at 5 per hour 25.00 Overhead (fixed and variable) 5 hours at 6.60 per hour 33.00 107.00 The overhead allocation rate is based on direct labour hours and comprises an allowance for both fixed and variable overhead costs. With the aid of regression analysis the fixed element of overhead costs has been estimated at 9,000 per week, and the variable element of overhead costs has been estimated at 0.60 per direct labour hour. The accounting records do not separate actual overhead costs between their fixed and variable elements The moulding department occupies its own premises, and all of the department's overhead costs can be regarded as being the responsibility of the departmental manager. In week 25 the department moulded 294 brackets, and actual costs incurred were: Direct material X (2,030kg used) 14 125 Direct labour (1,520 hours worked) 7 854 Overhead expenditure 10 200 The 1,520 hours worked by direct labour included 40 hours overtime, this is paid at 50% above pay rates. Requirements: a) Prepare a report for the moulding department manager on the results of the moulding department for week 25, presenting information in a way which you consider to be most useful. 10 b) Discuss the treatment of overheads adopted in your report and describe an alternative treatment, contrasting its use with the method adopted in your report. 10 c) Describe the approaches used for determining standards for direct costs and assess their main strengths and weaknesses. 10
