You have been asked to suggest a method of deducing the full cost of various production orders of Patel Ltd. This method will be used as a basis for setting prices. The production orders vary greatly in size and nature from one to the next. The following information has been taken from the budget for the forthcoming financial year:

Direct labour hours100,000 hours

Machine hours 90,000 hours All in Machining

Manufacturing costs:

Power 40,000

Direct materials 200,000

Machine maintenance and repairs 38,000

Factory heat and light 4,000

Cleaning materials 6,000

Direct labour 600,000

Depreciation of Factory Buildings 130,000

Depreciation of Machinery 402,000

Indirect labour 100,000

Total1,520,000

The business has 2 departments: Machining and Assembly. The following information will help you to split the Overhead costs between the 2 departments:

80% of Power cost goes to Machining department.

The Assembly department needed 8,000 of Maintenance and repairs.

The Factory head and light and Cleaning materials is split evenly between the departments.

The assembly department used 80,000 hours of Direct Labor during the year.

Depreciation of factory building is split evenly while the Machinery depreciation goes all to the Machining Department

Indirect Labor is apportioned according to the Direct Labor proportions.

All direct labour is paid the same hourly rate.

Required:

(a) Calculate two OH rates for the 2 departments.

(b) Prepare full costings for Order No 101 using each of the rates calculated in (a)

The cost sheet for Order No 101 shows the following:

Raw materials 15,000

Direct labour hours 4,000hours (500 of which were in the Machining department)

Machine hours 1,900 hours