Question 1 (40 marks) Spirit Bakery usually has a good return on investment (ROI). Last year the profits fell, and the managing director thinks the entity should restructure the current pricing strategy based on markup. The production manager however believes the problems may be attributed to an inappropriate costing system where overheads were not properly absorbed into the final product. The production manager thinks that other utilities are to be apportioned using floor area and the service departments provide support to the production as well as the other service departments. The estimated overhead costs for the entity for December 2022 are as follows: In addition, the following overheads have been allocated to cost centers: The entity uses the same materials for all its products and the average raw material price is listed at $300 per kilogram. While, the average direct labour hour rate is listed at $275 per hour. The pricing policy of the entity is to maintain a margin of 20% on all its products. The data below pertains to both products: Required: a) Prepare the overhead analysis schedule showing the allocated, apportioned, and reapportioned factory overhead costs for each cost center. (26 marks) b) Calculate the OARs (4 marks) c) Calculate the selling prices, total costs, and profits for each product. (10 marks) Question 1 (40 marks) Spirit Bakery usually has a good return on investment (ROI). Last year the profits fell, and the managing director thinks the entity should restructure the current pricing strategy based on markup. The production manager however believes the problems may be attributed to an inappropriate costing system where overheads were not properly absorbed into the final product. The production manager thinks that other utilities are to be apportioned using floor area and the service departments provide support to the production as well as the other service departments. The estimated overhead costs for the entity for December 2022 are as follows: In addition, the following overheads have been allocated to cost centers: The entity uses the same materials for all its products and the average raw material price is listed at $300 per kilogram. While, the average direct labour hour rate is listed at $275 per hour. The pricing policy of the entity is to maintain a margin of 20% on all its products. The data below pertains to both products: Required: a) Prepare the overhead analysis schedule showing the allocated, apportioned, and reapportioned factory overhead costs for each cost center. (26 marks) b) Calculate the OARs (4 marks) c) Calculate the selling prices, total costs, and profits for each product. (10 marks)
