Question 1:

a. Explain what is meant by batch costing?(2 marks)

The following budgeted annual data for Anna is available.

Production departments Service departments

Assembly Machining Stores Canteen

Overheads($) 36,000 50,000 6,250 2,500

Direct Labour 6,000 3,500 - -

hours

Machine hours 2,500 5,500 - -

The following information is also available:

Assembly Machining Stores

Number of

orders 800 1,200 -

Use of

canteen 65% 25% -

b. Reapportion the service department costs to the production departments using a

suitable basis for each. (4 marks)

c. Calculate a suitable overhead absorption rate for each production department to

two decimal places. (2 marks)

A typical order for a batch of 1000 units requires the following:

Direct Materials $48,000

Direct Labour:

Assembly department 500 hours at $12 per hour

Machining department 300 hours at $8 per hour

Machine hours

Assembly department 210 hours

Machining department 500 hours

Selling and administration costs $7,000

d. Calculate to two decimal places the total cost per unit based on a batch of 1000

units. (4 marks)

e. Mike a customer asked for a quote for an order of 75 units. Anna calculates the

selling price to give a profit margin of 60%. Calculate the selling price for the

order. (4 marks)

f. Mike has considered the quoted price and has asked for a discount of 5%. Should

Anna allow the discount? Justify your answer. (4 marks)