Question 2, Part I

Azure has a job order and the following data have been recorded on its job cost sheet:

Direct material $50,000

Direct labour hours 1,000

Direct labour wage rate $25

Machine hours 750 hours

Number of units completed 800

The company applies manufacturing overhead on the basis of machine hours and the predetermined overhead rate is $20 per machine hour. Management is now considering whether this job order is profitable or not and how does this job order fare compared to the industry benchmark.

Required

a) Compute the unit product cost that would appear on the job cost sheet for this job.

b) Using a mark-up percentage of 20% of the full product cost, how much profit/loss would this job make?

c) Considering the industry benchmark for manufacturing overhead for similar jobs is 50% of direct labour, identify whether this job has a manufacturing overhead lower or higher than a similar job using the industry benchmark. Briefly explain what could cause a difference.