Heavy Industry Ltd is a recently acquired subsidiary of Power Tools Ltd and you have also been asked to look into their Management Accounting practises and Job Costing procedures.

Following analysis you discover that Heavy Industry uses a machine hour rate of overhead recovery in its Machining Department and a Direct Labour Hour Rate of recovery in its Finishing Department. The budgeted overheads in the Machinery Department are 40,000 and 64,000 in the Finishing Department.

The Budgeted level of Activity in both Departments are as follows :

Machining Department Finishing Department

Budgeted Machine Hours 10,000 11,000

Budgeted Direct Labour Hours 25,000 25,600

You have been asked by the Managing Director of Heavy Industry to cost a very important new contract called Job 12. The Production Manager of Heavy Industry has given you the following information in relation to Job 12.

Job 12 costs 400 in Direct Materials and 600 in Direct Labour . Job 12 requires 20 machine hours and 80 direct labour hours in the Machining Department and 40 Machine Hours and 200labour hours in the Finishing Department.

A. Calculate the full Production Cost of Job 12 using the current basis of overhead absorption used by Heavy Industries

B. Calculate the full Production Cost of Job 12 if the absorption rate in the MachiningDepartment is changed to a Direct Labour Rate and to a Machine Hour Rate in the Finishing Department.

C. Calculate the selling price for Job 12 if the Managing Director requires a 25 % Gross Margin on Salesusing the current absorption method.

D. If Heavy Industries are awarded the contract at that Sales Priceand at the end of the periodactual overheads in the Machining Departmentare 50,000 and 60,000 in the Finishing Department and materials , labour , machine and labour hours are all in line with budget in both departments what will be the Actual Gross Margin % achieved on Job 12.