Identify and describe appropriate costing systems for specific engineering busin

Question

Identify and describe appropriate costing systems for specific engineering business functions.

The following costs relate to the production of 1000 steel containers by an engineering firm for the oil industry.

Basic Factory Wages £110,000

Overtime Factory Wages £49,500

Office Salaries £68,000

Office Expenses £3,250

Rent Rates £16,650

Advertising £8,750

Raw Materials £118,000

Power £3,500

Production Line Lubricants for Lathes £2,100

Heat and Light £1,100

Depreciation of Lathes £3,800

Tool Setting for Production £5,100

(a) Classify these costs into direct and indirect and determine the total cost of production.

Explanation / Answer

Factory Wages 110000 Direct Cost Overtime Factory Wages 49500 Indirect Cost Office Salaries 68000 Indirect Cost Office Expenses 3250 Indirect Cost Rent Rates 16650 Indirect Cost Advertising 8750 Indirect Cost raw Material 118000 Direct Cost Power 3500 Indirect Cost Production Line Lubricants 2100 Indirect Cost Heat and Light 1100 Indirect Cost Depreciation 3800 Indirect Cost Tool Setting 5100 Indirect Cost

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