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Calculate the overhead application rate using direct labour hours and direct labour cost as bases.

Accounting

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The overhead application rate is calculated using the formula:

Overhead Application Rate=Budgeted Factory OverheadsBudgeted Activity Base\text{Overhead Application Rate} = \frac{\text{Budgeted Factory Overheads}}{\text{Budgeted Activity Base}}

Given budgeted figures:
Budgeted Factory Overheads = Kshs 62,000
Budgeted Direct Labour Cost = Kshs 98,000
Budgeted Direct Labour Hours = 155,000 hours
Budgeted Machine Hours = 50,000 hours

Part a· 2 steps

Direct labour hours

  1. Identify the budgeted factory overheads and direct labour hours.

    Budgeted Factory Overheads = Kshs 62,000
    Budgeted Direct Labour Hours = 155,000 hours

  2. Calculate the overhead application rate.

    Overhead Application Rate=Kshs 62,000155,000 hours\text{Overhead Application Rate} = \frac{\text{Kshs 62,000}}{\text{155,000 hours}} Overhead Application Rate=Kshs 0.40 per direct labour hour\text{Overhead Application Rate} = \text{Kshs 0.40 per direct labour hour}

    The overhead application rate on the basis of direct labour hours is:

    Kshs 0.40 per direct labour hour\boxed{\text{Kshs 0.40 per direct labour hour}}

Part b· 2 steps

Direct labour cost

  1. Identify the budgeted factory overheads and direct labour cost.

    Budgeted Factory Overheads = Kshs 62,000
    Budgeted Direct Labour Cost = Kshs 98,000

  2. Calculate the overhead application rate as a percentage of direct labour cost.

    Overhead Application Rate=Kshs 62,000Kshs 98,000×100%\text{Overhead Application Rate} = \frac{\text{Kshs 62,000}}{\text{Kshs 98,000}} \times 100\% Overhead Application Rate=0.632653×100%\text{Overhead Application Rate} = 0.632653 \times 100\% Overhead Application Rate=63.27% of direct labour cost (rounded to two decimal places)\text{Overhead Application Rate} = 63.27\% \text{ of direct labour cost (rounded to two decimal places)}

    The overhead application rate on the basis of direct labour cost is:

    63.27% of direct labour cost\boxed{\text{63.27\% of direct labour cost}}

Part c· 2 steps

Machine hours

  1. Identify the budgeted factory overheads and machine hours.

    Budgeted Factory Overheads = Kshs 62,000
    Budgeted Machine Hours = 50,000 hours

  2. Calculate the overhead application rate.

    Overhead Application Rate=Kshs 62,00050,000 hours\text{Overhead Application Rate} = \frac{\text{Kshs 62,000}}{\text{50,000 hours}} Overhead Application Rate=Kshs 1.24 per machine hour\text{Overhead Application Rate} = \text{Kshs 1.24 per machine hour}

    The overhead application rate on the basis of machine hours is:

    Kshs 1.24 per machine hour\boxed{\text{Kshs 1.24 per machine hour}}

Part d· 2 steps

Overhead costs

  1. Identify the budgeted factory overheads.

    Budgeted Factory Overheads = Kshs 62,000

  2. Calculate the overhead application rate based on overhead costs.

    This implies a rate per Kshs of overhead cost.

    Overhead Application Rate=Kshs 62,000Kshs 62,000\text{Overhead Application Rate} = \frac{\text{Kshs 62,000}}{\text{Kshs 62,000}} Overhead Application Rate=Kshs 1.00 per Kshs of overhead cost\text{Overhead Application Rate} = \text{Kshs 1.00 per Kshs of overhead cost}

    The overhead application rate on the basis of overhead costs is:

    Kshs 1.00 per Kshs of overhead cost\boxed{\text{Kshs 1.00 per Kshs of overhead cost}}

Part e· 3 steps

Production cost

  1. Determine the components of budgeted production cost.

    Budgeted Production Cost = Budgeted Direct Materials + Budgeted Direct Labour + Budgeted Factory Overheads.

  2. Check for available budgeted figures.

    Budgeted Direct Labour = Kshs 98,000
    Budgeted Factory Overheads = Kshs 62,000
    Budgeted Direct Materials cost is not provided in the budget information. Only actual direct material costs are given.

  3. Conclude on the calculation.

    Since the budgeted direct materials cost is not provided, the budgeted production cost cannot be determined, and therefore, the overhead application rate on the basis of production cost cannot be calculated.

    Cannot be calculated due to missing budgeted direct material cost.\boxed{\text{Cannot be calculated due to missing budgeted direct material cost.}}
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