Question 2

Huge Black Monster Limited uses machine hour rate of overhead recovery in its machinery department and direct labour hour rate of recovery in its assembly department. The budgeted overheads in the machinery department and the assembly department are $40,000 and $64,000 respectively.

	Machining Department	Assembly Department
Budgeted machine hours	10,000	0
Budgeted direct labour hours	25,000	25,600

Job # 627 costs $400 in direct materials and $600 in direct labour. It requires 20 machine hours (80 direct labour hours) in the machining department and 200 hours in the assembly department.

Required:

1. Calculate the full cost of job 627 using the current bases of overhead absorption

7 marks

2. Calculate the full cost of job 627 if the absorption rate is in the machining department is changed to direct labour hour rate. 8 marks