QUESTION 2 (26 MARKS)

Sonja Cc is a small firm that makes outfits for customers tailored for their functions, in May 2021 she has orders for a baby shower (BS) and a bridal party (BP).

The details for Job BS are as follows:

Direct materials: 12 units at N$124.

Direct labour: - 20 hours for department A at N$25 per hour

- 10 hours for department B at N$30 per hour

- 12 hours for department C at N$27.5 per hour

The firm allocates manufacturing overheads budgeted at N$2 500 in department A, N$2 000 in department B and N$3 000 in department C.

The firm expects a profit of 55% on the total cost of BS.

The details for Job (BP) are as follows:

Direct materials: 10 units at N$108.

Direct labour: - 16 hours for department A

- 10 hours for department B

- 14 hours for department C

The labour hours are budgeted at 40, 25 and 30 in departments A, B and C respectively. The firm expects a profit of 40% on the total cost of BP.

REQUIRED:

3.1 Calculate the predetermined overhead allocation rate (OAR) for each department using labour hours as a base for such allocation.

3.2 Calculate the cost of a bridal party (BP).

3.3 Calculate the Selling price of the bridal party (BP).

3.4 Calculate the cost of a baby shower (BS).

3.5 Calculate the Selling price of a baby shower (BS).

3.6 If the number of outfits are the same for each type of function, which function should Sonja choose to produce and why