QUESTION FOUR A manufacturing company has prepared the following budgeted information for year 2: K Direct material 800,000 Direct labour 200,000 Direct expenses 40,000 Production overhead 600,000 Administrative overhead 328,000 Budgeted activity levels include: Units Budgeted production 600,000 Machine hours 50,000 Labour hours 40,000 It has recently spent heavily upon advanced technological machinery and reduced its workforce. As a consequence it is thinking about changing its basis for overhead absorption from a percentage of direct labour cost to either a machine hour or labour hour basis. The administrative overhead it to be absorbed as a percentage of factory cost. Required: Prepare predetermined overheads absorption rates for production overheads based upon the three different basis for absorption mentioned above. Select the overhead absorption rate that you think the organisation should use giving reasons for your decision. The company has been asked to price job AX. This required the following: Direct material K3,788 Direct labour K1,100 Direct expenses K 422 Machine hours 120 Labour hours 220 Compute the selling price for this job using the absorption rate selected in (b) above, given that the company profit margins is equal to 10% of the price.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
QUESTION FOUR
A manufacturing company has prepared the following budgeted information for year 2:
K
Direct material 800,000
Direct labour 200,000
Direct expenses 40,000
Production overhead 600,000
Administrative overhead 328,000
Budgeted activity levels include:
Units
Budgeted production 600,000
Machine hours 50,000
Labour hours 40,000
It has recently spent heavily upon advanced technological machinery and reduced its workforce. As a consequence it is thinking about changing its basis for overhead absorption from a percentage of direct labour cost to either a machine hour or labour hour basis. The administrative overhead it to be absorbed as a percentage of
Required:
- Prepare predetermined
overheads absorption rates for production overheads based upon the three different basis for absorption mentioned above. - Select the overhead absorption rate that you think the organisation should use giving reasons for your decision.
- The company has been asked to price job AX. This required the following:
Direct material K3,788
Direct labour K1,100
Direct expenses K 422
Machine hours 120
Labour hours 220
Compute the selling price for this job using the absorption rate selected in (b) above, given that the company profit margins is equal to 10% of the price.
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