Toronto Ltd is a manufacturing company making specialist computers for large organisations. It has 3 main departments, moulding, assembly and packaging. Recently the company has been losing market share. They believe this is due to their pricing policy.

The company currently allocates manufacturing overheads to jobs on a factory wide basis on the basis of labour hours. A mark up of 25% is added to the manufacturing cost to determine the selling price.

The company management are considering moving to a departmental overhead allocation basis using the dominant activity in each department. The 2020 overhead allocation rate was based on the budgeted figures as follows:

	Moulding	Assembly	Packaging
Direct labour Hours	20,000	30,000	30,000
Labour Rates per Hour	€12	€10	€8
Machine Hours	50,000	40,000	20,000
Manufacturing Overheads	€800,000	€1,000,000	€600,000

One of the jobs taken on by Toronto Limited during 2020 was Job no. 400, the

details of which are as follows:

	Moulding	Assembly	Packaging
Direct Labour Hours	250	200	325
Machine Hours	500	175	250
Material Cost	€1,000	0	€200

In early 2021 the company determined that the actual 2020 levels of activity and costs in the three main departments were as follows:

	Moulding	Assembly	Packaging
Direct Labour Hours	18,000	28,500	38,000
Machine Hours	50,000	35,000	20,000
Manufacturing Overheads	€900,000	€1,000,000	€600,000

The labour pay rate remained at the budgeted rates.

Required:

(a) Calculate the price charged for job 400 under the factory-wide basis.

(8 marks)

(b) Calculate the price which would have been charged for job 400 if the departmental basis had been used.

(10 marks)

(c) Calculate the total under or over absorption of overheads for 2020 on the basis of the factory-wide overhead allocation.

(8 marks)

(d) Calculate the under or over absorption of overheads in the moulding department using the departmental overhead allocation.

(6 marks)

(e) Explain, using examples, what is meant by the following terms;

i. Prime Cost

ii. Indirect Costs

iii. Cost Object

iv. Price taker