Question
The following information for the year 2019 is provided by Tromben Ltd: Total sales revenue $5,200,000 Direct labour hours 100 000 hours Machine hours 80
The following information for the year 2019 is provided by Tromben Ltd:
Total sales revenue
$5,200,000
Direct labour hours
100 000 hours
Machine hours
80 000 hours
Costs:
Depreciation: factory equipment
$280,000
Depreciation: factory building
$616,000
Depreciation: administration equipment
$60,000
Direct materials
$500,000
Factory electricity
$130,000
Sales commission (5% sales revenue)
$260,000
Indirect labour
$300,000
Machine and maintenance repairs
$78,000
General administration
$120,000
Direct labour
$2,000,000
Interest
$20,000
Lubricants and cleaning materials factory
$10,000
Rent marketing and sales office
$12,000
Other miscellaneous production costs
$24,000
Quality control costs
$30,000
Question 1 - Identification of types of costs
From the information provided, calculate the following costs:
Total direct costs
Total overhead costs
Total manufacturing costs
Total non-manufacturing costs
Total full costs
Labour rate ($/DLH)
Question 2 - Calculation of OH rates
Assume Tromben Ltd increased the total indirect costs to $1,572,000.
Calculate the total overhead rates using:
a)DL hours as the cost driver
b)Machine hours as the cost driver
a)Rate based on DL hours
b)Rate based on machine hours
Question 3 - Calculation of cost and price charged for a job
The company has received an inquiry about a sophisticated product which is estimated to take 84 direct labour hours and 12 machine hours. This product requires two components at a cost of $80 each plus other materials costing $140.
Required:
What would be the cost of this job, AND
What would be the price (charge to the client) if the firm applies 75% mark-up on cost:
DL hours as cost driver
Machine hours as cost driver
Price=.
Price=
Assuming the firm used DL hours as the cost driver
Assuming the firm used machine hours as the cost drive
Why are the prices charged to the customer for the same product different?
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