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Question 3 Fencing Ltd, a small jobbing company, has the following budgeted figures for the coming year: Direct materials 420,000 Direct labour 134,400 Factory overheads

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Question 3 Fencing Ltd, a small jobbing company, has the following budgeted figures for the coming year: Direct materials 420,000 Direct labour 134,400 Factory overheads 120,000 Budgeted direct labour hours 16,000 hours Budgeted machine hours 8,000 hours (a) You are required to calculate: (1) The overhead absorption rate per direct labour hour. (10 marks) (2) The overhead absorption rate per machine hour. (10 marks) The details of a customer's Job No. 562 are as follows: Direct materials 20,000 Direct labour hours 260 hours Machine hours 170 hours Required: (b) Calculate the cost of job No. 562 using the overhead absorption rate per machine hour. (20 marks) (c) Calculate the cost of job No. 562 using the overhead absorption rate per direct labour hour. (20 marks) (d) Calculate the selling price of job No. 562 to the customer using the labour absorption rate (as calculated in (a) above and assuming a mark-up of 20% on cost). (20 marks) (e) State two reasons why a business needs to calculate the cost price of a product. (20 marks) (Total 100 marks)

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