Question
Blue Sea Ltd manufactures two products: Light and Heavy. It has two production departments (machining and finishing) and two support departments (quality control and engineering).
Blue Sea Ltd manufactures two products: Light and Heavy. It has two production departments (machining and finishing) and two support departments (quality control and engineering). Departmental overhead rates are applied based on machine hours for the machining department and direct labour hours for the finishing department. The budgeted level of machine hours is 75,000 hours and the budgeted level of direct labour hours is 94,000 hours. The budgeted overhead costs are as follows:
Quality Control | Engineering | Machining | Finishing |
280,000 | 330,000 | 640,000 | 776,000 |
The work done by support departments for other departments are as follows:
| Quality Control | Engineering | Machining | Finishing |
Quality Control | 5% | 40% | 55% | |
Engineering | 15% | 55% | 30% |
Light requires direct material costing $20 per unit and direct labour costing $45 per unit. A unit of Light is produced using 3 machine hours in the machining department and 6 labour hours in the finishing department. Heavy requires direct material costing $34 per unit and direct labour costing $60 per unit. A unit of Heavy is produced using 4 machine hours in the machining department and 7 labour hours in the finishing department.
Required:
Calculate the unit product cost for Light and Heavy. Calculate the overhead cost per unit using the:
Direct method.
Step-down method.
Reciprocal services method.
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