Question

Ethekwini Builders Ltd provides a unique scope of services in the home renovations industry. They deliver quality, reliability and impeccable customer service while staying on time and on budget, ensuring a hassle-free renovation experience for their customers.

Ethekwini Builders Ltd received an offer to Mbhele and Company to produce two different types of cabinets, a high quality and low quality cabinet. Ethekwini decided to allocate a job number to it. The high quality cabinet was Job 204 and the low quality cabinet was Job 205.

The following information was taken from the records of a manufacturing company:

The budgeted manufacturing overhead for the coming year is R 120 000.

The budgeted production provides for:

Direct Material cost R 160 000

Direct labour cost R 150 000

Labour hours 100 000

Machine hours 40 000

There was no work-in-process at the beginning of the financial year.

Actual production statistics for the month of this year (January) were as follows:

Job No	Material Costs	Labour costs	Labour Hours
204	R 4 000	R 3 600	2 000
205	R 6 000	R 5 400	3600

REQUIRED

1 Calculate the manufacturing overhead absorption rates using the following bases:

- Material cost

- Labour hours

2. Calculate the cost of completing Job 204 and Job 205, using the material cost basis to calculate the applied overheads as calculated above.

3. Calculate the selling price on Job 204 if the mark up is 30% and Job 205 if the mark up is 25%.

4. Assume that the total actual overhead for Job 204 was R 2 950 and for job 205 was R 4 600 for the month, calculate the amount for under- or over-absorbed manufacturing overhead.

Answer 1

1.

	Particulars	R
	Manufacturing overhead	R 120,000.00
1	Material cost bases
	Material cost	R 160,000.00
	Manufacturing overhead as a % of material cost	75%
2	Labour hours bases	R 100,000.00
	Manufacturing overhead per labour hour	R             1.20

2.

Cost of completing jobs
Particulars	Job 204	Job 205
Material cost	R     4,000.00	R     6,000.00
Labour cost	R     3,600.00	R     5,400.00
Manufacturing overhead 75% of Material cost	R     3,000.00	R     4,500.00
Total cost	R   10,600.00	R   15,900.00

3.

Particulars	Job 204	Job 205
Total cost	R   10,600.00	R   15,900.00
Markup as % of cost	30%	25%
Add profit @ markup of cost	R     3,180.00	R     3,975.00
Selling price	R   13,780.00	R   19,875.00

4.

Particulars	Job 204	Job 205
Actual Manufacturing overhead	R     2,950.00	R     4,600.00
Manufacturing overhead applied	R     3,000.00	R     4,500.00
(Underabsorbed)/ Overabsorbed	-R          50.00	R        100.00

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