Kwong Tin Company (KT) makes mugs. It has two production departments: Department One and Department Two. A pre-determined overhead rate is used in applying manufacturing overhead to the mugs. Department One overhead is to be applied on the basis of direct labour hour. Department Two overhead is to be applied on the basis of machine hour.

The 2019 budget is extracted as follows:

Supervisors' and manager's salary Rent and rates

Electricity and insurance

Machines and equipment depreciation

Machine hours Direct labour hours

Production Administration Department Department

Production Department One

1,200,000 1,800,000 300,000 330,000

Production Department One

(Hours) 100,000 200,000

Two $$$

1,600,000 3,200,000 500,000 1,900,000

1,000,000 300,000 50,000 150,000

Production Department Two

(Hours) 360,000 90,000

Moreover, the following costs are budgeted to make ONE piece of standard mug: Production Production

Department One Department Two $$

Direct materials

Wages of production workers Direct expenses

Machine hours used

Direct labour hours used

The unit selling price of standard mug is $45.

1.5 3.0 0.5

6 minutes 12 minutes

0.5 3.5 1.0

0.5 hour 0.1 hour

In January 2019, KT made and sold 2,000 pieces of special mugs for the customer Swan Company at $75 each (job order S1501) through an overseas agent, Mid Company. The special mugs were printed with famous brand logo. Department One needed to pay royalty fee $2 per unit and spend 20 minutes to make one special mug instead. KT also needed to pay commission of $0.5 for each special mug to Mid Company, in addition to the fixed monthly service fee $1,000.

Question 1 (35%) Required: Kwong Tin Company (KT) makes mugs. It has two production departments: Department One and Department Two. A pre-determined overhead rate is used in applying manufacturing Explain the following terms and quote one example for each type of costs from the KT case overhead to the mugs. Department One overhead is to be applied on the basis of direct labour in the question: hour. Department Two overhead is to be applied on the basis of machine hour. i. Product costs The 2019 budget is extracted as follows: ii. Period costs Production Production Administration iji Variable costs Department Department Department iv. Fixed costs One Two V. Semi-variable costs S $ (5 marks) Supervisors' and manager's salary 1,200,000 1,600,000 1,000,000 Rent and rates 1,800,000 3,200,000 300,000 b) Calculate the budgeted prime costs per unit for standard mug. Electricity and insurance 300,000 500,000 50,000 (5 marks) Machines and equipment depreciation 330,000 1,900,000 150,000 c) Calculate production overhead absorption rates of Department One and Department Two. (4 marks) Production Production Department One Department Two d) Calculate the total cost per unit and the gross profit per unit of standard mug. (4 marks) (Hours) (Hours) Machine hours 100,000 360,000 e) Prepare the job cost report of order S1501 (both in unit and in total), using the following Direct labour hours 200,000 90,000 format and calculate the total net profit of the order. Moreover, the following costs are budgeted to make ONE piece of standard mug: Kwong Tin Company Production Production Cost Statement for Job $1501 Department One Department Two (for 2,000 units of special mugs) Unit Costs Total Direct materials 1.5 0.5 Dept. One ($) Dept. Two ($) Wages of production workers 3.0 3.5 Direct materials Direct expenses 0.5 1.0 Direct wages Machine hours used 6 minutes 0.5 hour Direct expenses Direct labour hours used 12 minutes 0.1 hour Prime Costs Production overhead The unit selling price of standard mug is $45. Total production costs In January 2019, KT made and sold 2,000 pieces of special mugs for the customer Swan (17 marks) Company at $75 each (job order S1501) through an overseas agent, Mid Company. The special (Total 35 marks) mugs were printed with famous brand logo. Department One needed to pay royalty fee $2 per unit and spend 20 minutes to make one special mug instead. KT also needed to pay commission of $0.5 for each special mug to Mid Company, in addition to the fixed monthly service fee $1,000