Orion Limited's total overhead for one month was £24,000. The monthly budgeted total labor hours were 1,200 and the total budgeted material use was 1,600 kg. During the month the company bids for a job that requires 60 kg of materials at £7.50 per kg and 12 direct labor hours at £25 per hour. Overheads are recovered directly on the basis of working hours. The profit is 25% based on the selling price.

Reuired

(i) If the actual direct hours worked at the job are 15, what is the new profit, assuming the quoted selling price cannot be renegotiated? 

(ii) Would this change your answer to part (i) above if the overheads were instead compensated based on material usage rather than working hours, and what would the new profit be?

(c) "Managing costs is crucial given the competitive environment in which modern businesses operate". Discuss this statement (600 words max) by including in your discussion some of the recent cost approaches that have emerged to help businesses manage their costs. 

Answer rating: 100% (QA)

i To calculate the profit for the job we need to first calculate the total cost of the job Direct labor cost 15 hours x 25 per hour Direct labor cost ... View the full answer