Complete Exercise 5.11 on page 151 and 152 in the Drury textbook.
Please show all your work and enumerate your process. Submit your assignment in either a Word document or Excel spreadsheet.
Stores 5.11 Product cost calculation and costs for decision-making Shown below is next year's budget for an engineer- ing company manufacturing two different products in two production departments, namely a machine shop and an assembly department. A stores depart- ment is responsible for storing and issuing materi- als. Machine Assembly shop department Production overhead: Variable 561 000 254 200 Fixed 588 000 392 000 1 149 000 646 200 Number of 40 60 employees Floor area (MP) 6 000 6 000 Material usage 80 000 60 000 42 000 42 000 4 2000 Product Sales and production volume Material costs, per unit Direct labour: X 4000 units 16 Y 5 000 units 10 Maximum practical capacity is 140 000 machine hours for the machine shop and additional capacity for the assembly department is easily obtainable. Machine hour capacity cannot be increased over the next year. Fixed overheads are common and unavoidable to all alternatives and will remain Hours per unit Hours per unit 12 10 8 10 Capacity Machine shop (5 per hour) Assembly department (4 per hour) Machining: Machine shop Assembly department 14 8 1 unchanged inrespective of the level of production run of business, and not provided for in the budget. They are as follows: Overbeads are charged to production on the () an order for 1000 units of product X from basis of budgeted activity, and selling prices are Regan plc offering to pay 200 per unit for determined on a cost-plus basis by adding 20 per them; cent to total cost. (i) a contract to supply 500 units per month of (a) You are required to establish an appropriate product X from Thatcher plc for 12 overhead absorption rate for each production months at a price per unit of 220. department and calculate the selling price for each unit using the company's cost-plus pricing You are required to set out the considerations method. You must clearly state and briefly which the management of the engineering justify the methods of overhead absorption company should take into account when deciding used. (9 marks) whether to accept each of these orders, and advise (b) In addition to the above data, two special the company as far as you are able on the basis of orders have been received, outside the normal the information given. (10 marks) Stores 5.11 Product cost calculation and costs for decision-making Shown below is next year's budget for an engineer- ing company manufacturing two different products in two production departments, namely a machine shop and an assembly department. A stores depart- ment is responsible for storing and issuing materi- als. Machine Assembly shop department Production overhead: Variable 561 000 254 200 Fixed 588 000 392 000 1 149 000 646 200 Number of 40 60 employees Floor area (MP) 6 000 6 000 Material usage 80 000 60 000 42 000 42 000 4 2000 Product Sales and production volume Material costs, per unit Direct labour: X 4000 units 16 Y 5 000 units 10 Maximum practical capacity is 140 000 machine hours for the machine shop and additional capacity for the assembly department is easily obtainable. Machine hour capacity cannot be increased over the next year. Fixed overheads are common and unavoidable to all alternatives and will remain Hours per unit Hours per unit 12 10 8 10 Capacity Machine shop (5 per hour) Assembly department (4 per hour) Machining: Machine shop Assembly department 14 8 1 unchanged inrespective of the level of production run of business, and not provided for in the budget. They are as follows: Overbeads are charged to production on the () an order for 1000 units of product X from basis of budgeted activity, and selling prices are Regan plc offering to pay 200 per unit for determined on a cost-plus basis by adding 20 per them; cent to total cost. (i) a contract to supply 500 units per month of (a) You are required to establish an appropriate product X from Thatcher plc for 12 overhead absorption rate for each production months at a price per unit of 220. department and calculate the selling price for each unit using the company's cost-plus pricing You are required to set out the considerations method. You must clearly state and briefly which the management of the engineering justify the methods of overhead absorption company should take into account when deciding used. (9 marks) whether to accept each of these orders, and advise (b) In addition to the above data, two special the company as far as you are able on the basis of orders have been received, outside the normal the information given. (10 marks)
