Question 2 (10 Marks)

Custom Clothing Ltd is a manufacturer of pieces of clothing ordered by customers in their own design. The minimum number of pieces to accept an order is 80 pieces. The following information for the year 2019 is provided by this company:

Total production and sales (number of pieces)

80,000 pieces

Total direct labour hours

100,000

Total machine hours

60,000

Costs:

Marketing

$2,400,000

Machine and maintenance repairs

$860,000

Depreciation of sewing machines

$32,000

Depreciation of factory building

$18,000

Depreciation of administration equipment

$8,000

Total cost of direct materials

$720,000

Cleaning materials factory

$6,000

Interest

$2,100

Total cost of direct labour

$1,800,000

Indirect labour

$1,400,000

Factory electricity

$650,000

Administration

$1,800,000

Other indirect costs

$520,000

Identification of costs

From the information provided, calculate the following costs:

Total direct costs

Total overhead costs

Total manufacturing costs

Calculation of OH rates

Calculate the total overhead rates (round to 2 decimal places) using:

Direct labour hours as the cost driver

Number of pieces produced as the cost driver

Rate based on direct labour hours

Rate based on number of pieces produced

Calculation of cost and price charged for an order of 200 pieces

The company has received an order for 200 pieces of clothing designed by the customer. It is estimated the order will take 240 direct labour hours (DLH) and 140 machine hours (MH). The company applies 60% mark-up on cost.

Calculate the cost and price of the order separating the cost into direct materials, direct labour and overhead cost (round to 2 decimal places), assuming the company used direct labour hours as the cost driver and the estimated cost of materials for this order is $2,400.

Calculate the cost and price of the order separating the cost into direct materials, direct labour and overhead cost (round to 2 decimal places), assuming the company used the number of pieces produced as the cost driver and the estimated cost of materials is the number of pieces multiplied by the average cost of materials per piece for the year 2019.

Direct labour hours as the cost driver

Number of pieces produced as the cost driver

Price =

Price =