Question

The following data are extracted from the current year’s budget of J.J. Trading.

	Machine   shop	Assembly   shop	Finishing   shop
Direct labour hours	20,000	18,000	10,000
Hourly wage rate	RM3.25	RM3.10	RM3.00
Production overhead	RM70,000	RM45,000	RM20,000

 

A customer has requested a quotation for supplying a special piece of equipment and the estimator has worked out the following details:

Components to be purchased	RM216
Materials from store	RM270
Direct labour times:
Machining	80   hours
Assembling	40   hours
Finishing	30   hours
Delivery cost to customer	RM60

 

Administration and marketing costs are covered by adding 10% to cost of manufacture. 12 ½% is added to the total (delivered) cost for profit.

You are required to :

(a) Calculate the cost for supplying this special piece of equipment.

(b) Calculate the selling price quoted to the customer.

Answer 1

Requirement a:

Cost for supplying special piece of Equipment

RM1,600

Working notes:

Overhead rates

Machine shop = RM70,000 / 20,000 = RM3.50

Assembly shop = RM45,000 / 18,000 = RM2.50

Finishing shop = RM20,000 / 10,000 = RM2.00

Total Cost

	RM
Components to be purchased	216
Materials from Store	270
Direct Labor Cost
Machining (80 x RM3.25)	260
Assembling (40 x RM3.10)	124
Finishing (30 x RM3.00)	90
Overhead Cost
Machining (80 x RM3.50)	280
Assembling (40 x RM2.50)	100
Finishing shop (30 x RM2.00)	60
Total Manufacturing Costs	1,400
Delivery cost	60
Administrative and Marketing cost (RM1,400 x 10%)	140
Total Cost	1,600

Requirement b:

Selling Price

RM1,800

Working notes:

Total Cost	RM1,600
Add: Profit (RM1,600 x 12.5%)	RM200
Selling Price	RM1,800

All the best...