You have been asked to suggest a method of deducing the full cost of various

production orders of Cheryl 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.

QUESTION 2: CHERYL LTD (CHAPTER 4-FULL COSTING) You have been asked to suggest a method of deducing the full cost of various production orders of Cheryl 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 hours 40,000 hours Direct Materials kg 10,000 kg Machine hours 60,000 hours Manufacturing costs: Power Direct materials Machine maintenance and repairs Factory heat and light Lubricants and cleaning materials Direct labour Depreciation factory buildings machinery Indirect labour 60,000 500,000 55,000 6,000 8,000 640,000 150,000 301,000 80,000 The business is not departmentalised for accounting purposes. All direct labour is paid the same hourly rate. The cost sheet for Order No 101 shows the following: Direct materials Direct labour hours 1.800 hours Machine hours 1.200 hours 850 kg Required: A. Calculate overhead absorption rate (CAR) using direct labour and machine hour basis. B. Prepare full costing for Order No 101 using overhead rate under machine hour basis and direct labour hour basis of allocation