Question 3

The following information relates to the activities of the production department of Will Smith Sdn Bhd for the month of March 2019:

	Production Department	Order Number 123
Direct materials consumed	120,000	20
Direct wages	180,000	25
Overhead chargeable	150,000
Direct labor hours worked	30,000	5
Machine hours operated	10,000	2

The company adds a margin of 50 per cent to the total production cost of specific units in order to cover administration expenses and to provide a profit.

Required:

a) Calculate the total selling price of order number 123 if overhead is absorbed using the following methods of overhead absorption:

I. Direct labor hours

II. Machine hours

(10 Marks)

b) State which of the two methods you would recommend for the production department. (10 marks)