Find out overhead application rate, Cost Accounting

Find Out Overhead Application Rate

The given is the budget of Superb Engineering Works for the 2002 year

Factory overheads

Kshs 62,000

Direct labour cost

Kshs 98,000

Direct labour hours

155,000

Machine hours           

50,000

Actual labour hours were

40,000

Actual machine hours were

30,000

Actual direct labour costs were

         Kshs   50,000

Actual direct material costs were

Kshs 45,000

Required

a) Find out the overhead application rate on the basis of

i. Direct labour hours

ii. Overhead costs

iii. Machine hours, and

iv. Direct labour cost

v. Production cost

Solution

i. Direct labour hours method

Overhead application rate (OAR) = 62,000/15,500

= Shs.0.4/labour hour

ii. Direct labour cost method

OAR = (62,000/98,000) * 100

= 63.27 percent

iii. Machine hour method

OAR = (62,000/50,000) * 100

Shs.1.24/machine hour

b) Overhead costs utilizing

i. Direct labour hours = 0.4 x 40000 = Shs 16000

ii. Direct labour cost = 63.27% x 50000 = Shs 31630

iii. Machine hours = 30,000 x 1.24 = Shs 37200

c) Production cost utilizing each of the methods

 

Prime cost

Overheads

Total cost

Cost/unit

i. Direct labour hours

95,000

16,000

111,000

111.00

ii. Direct labour cost

95,000

31,630

126,630

126.63

iii. Machine hours      

95,000

37,200

132,200

132.20

 

Posted Date: 2/5/2013 7:25:11 AM | Location : United States







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