This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
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ii) Step 1: Calculate the overhead absorption rate for the Machine shop. The overhead absorption rate for the Machine shop is based on machine hours. Overhead Absorption Rate (Machine shop) = Budgeted Production OverheadsBudgeted Machine Hours = (\180,000)/(6,000 hours) = \30 per machine hour Step 2: Calculate the overhead absorption rate for the Assembly shop. The overhead absorption rate for the Assembly shop is based on direct labour hours. Overhead Absorption Rate (Assembly shop) = Budgeted Production OverheadsBudgeted Direct Labour Hours = (\90,000)/(5,000 hours) = \18 per direct labour hour Overhead Absorption Rate (Machine shop): \30 per machine hour Overhead Absorption Rate (Assembly shop): \18 per direct labour hour c) Step 1: Calculate the total direct materials cost for Job A101. Total Direct Materials = Machine shop materials + Assembly materials Total Direct Materials = \2,000 + \8,000 = \10,000 Step 2: Calculate the total direct labour cost for Job A101. Total Direct Labour = Machine shop labour + Assembly labour Total Direct Labour = \10,000 + \5,000 = \15,000 Step 3: Calculate the applied overheads for the Machine shop for Job A101. Applied Overheads (Machine shop) = Machine hours for Job A101 × OAR (Machine shop) Applied Overheads (Machine shop) = 200 hours × \30/hour = \6,000 Step 4: Calculate the applied overheads for the Assembly shop for Job A101. Applied Overheads (Assembly shop) = Direct labour hours for Job A101 × OAR (Assembly shop) Applied Overheads (Assembly shop) = 300 hours × \18/hour = \5,400 Step 5: Calculate the total cost for Job A101. Total Cost = Total Direct Materials + Total Direct Labour + Applied Overheads (Machine shop) + Applied Overheads (Assembly shop) Total Cost = \10,000 + \15,000 + \6,000 + \5,400 = \36,400 Step 6: Calculate the selling price for Job A101. The mark-up is 20% on cost. Mark-up amount = Total Cost × 20\% = \36,400 × 0.20 = \7,280 Selling Price = Total Cost + Mark-up amount Selling Price = \36,400 + \7,280 = \43,680 Selling Price for Job A101: \43,680$ What's next? Send 'em! 📸