(a) Calculate by the different methods, six absorption rates for absorption of production overhead and comment on the suitable of each. (b) Calculate the production overhead cost of the order based on each of the above rates. (c) Give your recommendation to the company.

Practical Management Science
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Author:WINSTON, Wayne L.
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Chapter2: Introduction To Spreadsheet Modeling
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Atlas Engineering Ltd. Accepts a variety of jobs which require both and machine
operations. The budgeted Profit & Loss Account for the period 2018-19 is as follows:
(in lakhs of dollars)
Sales
75
Cost:
Direct Material
10
Direct Labour
5
Prime Cost
15
Production Overheads
30
Production Cost
45
Administration, Selling and Distribution Overheads 15
60
Profit
15
Other budgeted data :
Labour hours for the period
25,000
Machine hours for the period
15,000
No. Of jobs for the period
300
An enquiry has been received recently from a customer and the production department has prepared
the following estimate of the prime cost required for the job :
Direct Material
$ 2,500
Direct Labour
$ 2,000
Prime Cost
$ 4,500
Labour hours required
= 80
Machine hours required
= 50
You are required to:
(a) Calculate by the different methods, six absorption rates for absorption of production
overhead and comment on the suitable of each.
(b) Calculate the production overhead cost of the order based on each of the above rates.
(c) Give your recommendation to the company.
Transcribed Image Text:Atlas Engineering Ltd. Accepts a variety of jobs which require both and machine operations. The budgeted Profit & Loss Account for the period 2018-19 is as follows: (in lakhs of dollars) Sales 75 Cost: Direct Material 10 Direct Labour 5 Prime Cost 15 Production Overheads 30 Production Cost 45 Administration, Selling and Distribution Overheads 15 60 Profit 15 Other budgeted data : Labour hours for the period 25,000 Machine hours for the period 15,000 No. Of jobs for the period 300 An enquiry has been received recently from a customer and the production department has prepared the following estimate of the prime cost required for the job : Direct Material $ 2,500 Direct Labour $ 2,000 Prime Cost $ 4,500 Labour hours required = 80 Machine hours required = 50 You are required to: (a) Calculate by the different methods, six absorption rates for absorption of production overhead and comment on the suitable of each. (b) Calculate the production overhead cost of the order based on each of the above rates. (c) Give your recommendation to the company.
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