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

• i. Direct materials

  • Materials purchased and entirely issued to production: 6,000
  • Carriage on purchase of raw materials: 159
  $$\text{Total Direct Materials} = 6,000 + 159 = \boxed{6,159}$$

• ii. Direct Labour

  • Wages of operatives: 90
  $$\text{Total Direct Labour} = \boxed{90}$$

• iii. Direct expense

  • Royalties paid on all units produced: 240
  $$\text{Total Direct Expense} = \boxed{240}$$

• 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
  $$\text{Total Production Overheads} = 40,000 + 102 + 66 + 300 + 25 + 20 + 58 + 35 + 56 = \boxed{40,662}$$

Prime Cost is the sum of Direct Materials, Direct Labour, and Direct Expenses.

Factory Cost (also known as Manufacturing Cost or Work Cost) is the sum of Prime Cost and Production Overheads.

Assuming no work-in-progress inventory changes, the Cost of Production is equal to the Factory Cost.

This refers to the selling price after applying a 15% markup on the Cost of Production.

The overhead absorption rate is calculated by dividing the Total Production Overheads by the number of units budgeted for production.