Group the cost into the following classification: Direct materials, Direct Labour, direct expense, production overheads. Calculate the overhead absorption rate for the company.

Question

Asked on July 17, 2026Accounting

This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.

Accepted Answer · 2026-07-17T03:00:06.110Z

Here are the calculations based on the provided costs: Step 1: Group the costs into classifications (Part a) i. Direct materials Materials purchased and entirely issued to production: 6,000 Carriage on purchase of raw materials: 159 Total Direct Materials = 6,000 + 159 = 6,159 ii. Direct Labour Wages of operatives: 90 Total Direct Labour = 90 iii. Direct expense Royalties paid on all units produced: 240 Total Direct Expense = 240 iv. Production overheads Lubricant for factory machines: 40,000 Wages of security guards for factory: 102 Salaries - production department: 66 Salaries of fork-lift drivers: 300 Depreciation of factory machines: 25 Insurance on factory machines: 20 Plant repair and maintenance: 58 Factory manager salary: 35 Factory heating and lighting: 56 Total Production Overheads = 40,000 + 102 + 66 + 300 + 25 + 20 + 58 + 35 + 56 = 40,662 Step 2: Calculate Prime Cost (Requirement 1) Prime Cost is the sum of Direct Materials, Direct Labour, and Direct Expenses. Prime Cost = Direct Materials + Direct Labour + Direct Expenses Prime Cost = 6,159 + 90 + 240 = 6,489 Step 3: Calculate Factory Cost (Requirement 2) Factory Cost (also known as Manufacturing Cost or Work Cost) is the sum of Prime Cost and Production Overheads. Factory Cost = Prime Cost + Production Overheads Factory Cost = 6,489 + 40,662 = 47,151 Step 4: Calculate Cost of Production (Requirement 3) Assuming no work-in-progress inventory changes, the Cost of Production is equal to the Factory Cost. Cost of Production = 47,151 Step 5: Calculate Total Cost at markup of 15% (Requirement 4) This refers to the selling price after applying a 15% markup on the Cost of Production. Selling Price = Cost of Production × (1 + Markup Percentage) Selling Price = 47,151 × (1 + 0.15) Selling Price = 47,151 × 1.15 = 54,223.65 Step 6: Calculate the overhead absorption rate for the company (Part b) The overhead absorption rate is calculated by dividing the Total Production Overheads by the number of units budgeted for production. Overhead Absorption Rate = Total Production OverheadsNumber of Units Budgeted Overhead Absorption Rate = (40,662)/(1,000 units) = 40.662 per unit Send me the next one 📸

Accepted Answer · 2026-07-17T03:00:06.110Z

Here are the calculations based on the provided costs: Step 1: Group the costs into classifications (Part a) i. Direct materials Materials purchased and entirely issued to production: 6,000 Carriage on purchase of raw materials: 159 Total Direct Materials = 6,000 + 159 = 6,159 ii. Direct Labour Wages of operatives: 90 Total Direct Labour = 90 iii. Direct expense Royalties paid on all units produced: 240 Total Direct Expense = 240 iv. Production overheads Lubricant for factory machines: 40,000 Wages of security guards for factory: 102 Salaries - production department: 66 Salaries of fork-lift drivers: 300 Depreciation of factory machines: 25 Insurance on factory machines: 20 Plant repair and maintenance: 58 Factory manager salary: 35 Factory heating and lighting: 56 Total Production Overheads = 40,000 + 102 + 66 + 300 + 25 + 20 + 58 + 35 + 56 = 40,662 Step 2: Calculate Prime Cost (Requirement 1) Prime Cost is the sum of Direct Materials, Direct Labour, and Direct Expenses. Prime Cost = Direct Materials + Direct Labour + Direct Expenses Prime Cost = 6,159 + 90 + 240 = 6,489 Step 3: Calculate Factory Cost (Requirement 2) Factory Cost (also known as Manufacturing Cost or Work Cost) is the sum of Prime Cost and Production Overheads. Factory Cost = Prime Cost + Production Overheads Factory Cost = 6,489 + 40,662 = 47,151 Step 4: Calculate Cost of Production (Requirement 3) Assuming no work-in-progress inventory changes, the Cost of Production is equal to the Factory Cost. Cost of Production = 47,151 Step 5: Calculate Total Cost at markup of 15% (Requirement 4) This refers to the selling price after applying a 15% markup on the Cost of Production. Selling Price = Cost of Production × (1 + Markup Percentage) Selling Price = 47,151 × (1 + 0.15) Selling Price = 47,151 × 1.15 = 54,223.65 Step 6: Calculate the overhead absorption rate for the company (Part b) The overhead absorption rate is calculated by dividing the Total Production Overheads by the number of units budgeted for production. Overhead Absorption Rate = Total Production OverheadsNumber of Units Budgeted Overhead Absorption Rate = (40,662)/(1,000 units) = 40.662 per unit Send me the next one 📸

Group the cost into the following classification: Direct materials, Direct Labour, direct expense, production overheads. Calculate the overhead absorption rate for the company.

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Group the cost into the following classification: Direct materials, Direct Labour, direct expense, production overheads. Calculate the overhead absorption rate for the company.

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