The Overdale plant has two categories of overhead: maintenance and inspection. C

Question

The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance

£120,000

Inspection

£200,000

The plant currently applies overhead during direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job:

Direct materials

£1,500

Direct labour

£5,000

Machine hours

400

Number of inspections

6

Direct labour hours

750

Using direct labour hours to assign overhead, the total cost of the potential job would be:

£9,500

£6,000

£3,000

£1,600

Maintenance

£120,000

Inspection

£200,000

Explanation / Answer

Total OH = 120000+200000 = 320000

Budeted DL Hrs = 80,000

S0 OH Rate based on DL = 320,000/80,000 = 4 per Hr

Total Job cost :-

Direct materials 1,500

Direct labour 5,000

OH based on DL Hrs =750*4 = 3000

---------------------------

Job Cost 9,500 .............>Ans (a)

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