QUESTION 1

PASS Limited is a small company which manufactures furniture to order. The company uses Job costing in determining the costs and profit of each order. At the start of the financial year, the cost accountant gathered the following information in respect of the budgeted overheads for each of the three production departments as follows:

Department Budgeted overheads Overhead absorption basis

Carving E15,000 1,000 machine hours

Assembly E36,000 6,000 labour hours

Decoration E19,000 1,000 labour hours

Note: These figures are based on normal activity levels.

Selling and distribution overheads are calculated as 20% of factory cost i.e. direct costs plus

production overheads.

The accountant is now calculating the total net profit or loss on a recently completed order

for 100 reproduction regency wardrobes. Details of this order are as follows:

• The selling price of each wardrobe was E270
• Materials consumed E8,935
• Labour:
• Carving department 170 hours @ E10 per hour
• Assembly department 210 hours @ E12 per hour
• Decoration department 40 hours @ E8 per hour
• Machine usage in the carving department totalled 150 hours.
• A fee of E500 was paid to an expert furniture historian for consultancy services

provided in respect of the completion of this order.

Required:

1. Calculate the overhead absorption rates for the production departments.
2. Calculate:

(i) The total cost of the batch, clearly identifying Prime Cost, Factory Cost and Total Cost.

2. The unit cost.
3. The profit or loss per wardrobe.