The Pipe Company manufactured two products A and B during the first year of its operations. For purposes of product costing, an overhead rate of application of $1.70 per direct labour hour was used based on budgeted factory overheads of $ 3,40,000 and budgeted direct labour hours of 2,00,000 as follows: | Budgeted overheads $2,40,000 $ 1,00,000 $3,40,000 Budgeted hours Department 1 1,00,000 Department 2 1,00,000 2,00,000 The number of Labour hours required to manufacture each of these products was : Product A Product B In Department 1 In Department 2 4 1 1 4 At the end of the year, there was no work-in-progress. There were, however, 2,000 and 6,000 finished units respectively of products A and B on hand. Assume that budgeted activity was attained. (a) What was the effect on the Company's income of using a plantwise overhead rate instead of departmental overhead rates ? (b) Assume that material and labour costs per unit of product A were $ 10 and that the selling price was established by adding 40 per cent to cover profit and selling and administrative expenses . What difference in selling price would result from the use of departmental overhead rate against plantwise overhead rates ?

The Pipe Company manufactured two products A and B during the first year of its operations. For purposes of product costing, an overhead rate of application of $1.70 per direct labour hour was used based on budgeted factory overheads of $ 3,40,000 and budgeted direct labour hours of 2,00,000 as follows: | Budgeted overheads $2,40,000 $ 1,00,000 $3,40,000 Budgeted hours Department 1 1,00,000 Department 2 1,00,000 2,00,000 The number of Labour hours required to manufacture each of these products was : Product A Product B In Department 1 In Department 2 4 1 1 4 At the end of the year, there was no work-in-progress. There were, however, 2,000 and 6,000 finished units respectively of products A and B on hand. Assume that budgeted activity was attained. (a) What was the effect on the Company's income of using a plantwise overhead rate instead of departmental overhead rates ? (b) Assume that material and labour costs per unit of product A were $ 10 and that the selling price was established by adding 40 per cent to cover profit and selling and administrative expenses . What difference in selling price would result from the use of departmental overhead rate against plantwise overhead rates ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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