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Question 3 ESG Limited (ESG) manufactures electric motors for various brands Of machines. The motors are designed and assembled according to customers' specifications. ESG
Question 3 ESG Limited ("ESG") manufactures electric motors for various brands Of machines. The motors are designed and assembled according to customers' specifications. ESG uses norrnal costing to cost its job orders and applies plant-',vide manufacturing overhead (MOH) based on direct labour hours (DLH). Over or under-applied overhead is closed to Cost Of Goods Sold (COGS) annually on 31 March. ESG sells its products at normal cost plus a mark up. Motors are designed in Design Department using computer-aided design software on a mega machine. Once designs are approved, material is sourced from external manufacturers and motors are manually assembled in Assembly Department. Assembly workers are paid an hourly rate Of S12 per DLH. Designers are paid a fixed salary regardless Of complexity or volume Of job order. Designers are also responsible to oversee the completion Of jobs they designed - they also function as project managers. In consideration Of additional project management responsibilities, designers are paid an incentive payment equal to Of gross profit (computed based on nonnal product cost) for each job order completed within specified deadlines. For product costing purposes, ESG treats all bonuses and incentive payments as period expenses, and all spoilage costs as nonnal spoilage specific to each job. As such, designers have incentive to complete the jobs in a cost effective and timely manner. The following data relates to the current job completed in March 2021 for SkillsM Ltd, a first time customer. Direct materials Number Of units completed Direct labour hours per unit $200,000 (excluding spoilage) 5,000 0.5
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