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Question 3 Jarra Craft currently produces bar tops, tables and benches from wooden railway sleepers. The factory has reached a point where there is insufficient
Question 3 Jarra Craft currently produces bar tops, tables and benches from wooden railway sleepers. The factory has reached a point where there is insufficient capacity, and so the manager is thinking about how to maximise profitability. The following information is available: Bar tops Tables Benches Demand 20 10 30 Resources and costs utilised R R R Labour: (26; 32; 12 hours) 260 320 120 Materials: Wood (5; 2.5; 2 metres) 2 500 1 250 1 000 Variable overheads (based on labour hours) 260 320 120 3 020 1 890 1 240 The following schedule shows how the monthly fixed costs are allocated to the three products based on the number of total labour-hours used by each product. Total Bar Tops Tables Benches Fixed overhead: factory rental 6 000 2 600 1 600 1 800 Fixed overhead: administration 3 000 1 300 800 900 The company has 1 500 labour hours available per period and a maximum of 150 metres of wood. The listed selling prices are as follows: Bar Tops Tables Benches R R R 10 000 8 000 5 000 _____________________________________________________________________________ Cost and Management Accounting 1 / ICG / Page 52 The following is a summary of the production plan: Bar tops are always prioritised because of the large volumes of wood used in making them. Tables are ranked second. Benches are ranked last. Required Determine the optimal production mix. Hint: use the limiting factor method. [30] Question 4 Fruity Juices produce pure fruit juices. They have two processing departments, preparation and mixing, and one service department, maintenance. The following information is available for the purpose of departmentalising the manufacturing overheads. Direct labour hours Machine hours Value of machinery Number of employees Floor area Material usage Preparation 5 000 hrs 6 250 hrs R75 000 12 8 000 m 2 R5 690 Mixing 5 000 hrs 8 400 hrs R100 000 6 5 000 m 2 R6 875 Maintenance 1 000 hrs 1 200 hrs R25 000 3 2 000 m 2 R1 050 The following amounts represent the budgeted manufacturing overheads: Insurance R Buildings 15 000 Machinery 20 000 Depreciation of machinery 50 000 Maintenance of buildings 23 250 Specialised clothing 13 650 Cooling of factory buildings 11 250 Indirect materials Preparation department 3 050 Mixing department 2 980 Maintenance department 5 625 Direct labour hours are used as a basis of the secondary allocation of overheads. Required (a) Prepare an overhead allocation statement. (b) Calculate the overhead allocation rate for each of the process departments based on machine hours. [
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