Q2. Fastpac Ltd, A manufacturing company has two departments production and packing.

The budgeted overheads for the two departments for the coming year are as follows:

Department Fixed variable

Production 30,000 18,000

Packing 7,000 9,000

Fastpac Ltd estimates (budgets) Direct Labour Hours for each Department for the coming year as follows:

Direct labour Hours

Production 5,000 hrs

Packing 2,000 hrs

(a) Calculate the overhead absorption rate (both fixed and variable) for each Department based on Direct Labour Hours. ( 50 marks)

(b) The details of customers Job No. 671 are as follows:

Direct Materials 1,250

Direct Labour 460

Hours in Production 3

Hours in Packing 2

Calculate the total cost of job No.671. (30 marks)

(c) Calculate the Selling price of job No. 671 if the mark up on cost is 20%. (20 marks)

(d) State two reasons why a business needs to calculate the cost price of a product.