14 *Calculate cost-driver OBJECTIVES 1,2, 3 5. Impact Visuals Pty Ltd produces a

Question

14 *Calculate cost-driver OBJECTIVES 1,2, 3 5. Impact Visuals Pty Ltd produces annual reports and marketing materials for large companies. There are three categories of cost in its normal job-costing system: direct materials, direct labour and overhead (both variable and fixed), allocated on the basis of direct labour costs. Paula Proen, the management accountant, is concerned that clients are increasingly inclined to wait until the last minute to send in their final orders causing congestion and an increase in the variable production overhead rate because of higher overtime and facility and machine maintenance. This spike is during the 'crazy months of January, February and March, when many companies are rushing to get out their marketing materials. Paula obtains the following budgeted data for 2019 rates, job-costing system Home Insert Page Layout Formulas Data Review View Add-Ins Jan-Mar April-June July-Sept Oct-Dec $900 000 $620 000 $595 000 $605 000 $2 720 000 $400 000 $280 000 $250 000 $270 000 $1 200 000 Total 2 Direct materials 3 Direct labour costs Variable overhead costs as a 4 percentage of direct labour cost 5 Fixed overhead costs 60% 90% 300 000300 000$300 000$300 000 $1 200 000 60% impact Visuals Pty Ltd prices each job at 125% of costs. The company has received an order labeled job 332, for 150000 sales catalogues for the local shopping centre. Actual direct materials costs for this job are $15000 and actual labour costs are $10000. REQUIRED Calculate the cost of job 332 a. if it is completed in January-March 2019 and the budgeted overhead rate for that quarter is used to 1. allocate overhead costs

Explanation / Answer

1.
a. Applied Fixed Overhead

b. Applied Fixed Overhead

$    12,000.00

c.
Calculation of Average budgeted variable overhead rate -

Budgeted annual fixed overhead cost = $1200000
Budgeted annual Direct labour cost = $1200000
i.e Rate = 100% of direct labour

2.

Budgeted annual fixed overhead cost = $1200000
Budgeted annual Direct labour cost = $1200000
i.e Rate = 100% of direct labour

a.

b.

3. Except the quater Jan - Mar, costs in rest of the year is almost same. So, for correct pricing, it is advisible to Take average budgeted overhead costs so that we can get a reasonable total cost and quote the correct price of the job.

Fixed Overhead $ 300,000.00 Direct Labour $ 400,000.00 Rate 75% Actual Direct Labor $    10,000.00 Applied Fixed Overhead $      7,500.00

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