A furniture making business manufactures quality furniture to customers? orders. It has three production departments and two service departments. Budgeted overhead costs for the coming year are as follows:

......................................................Total(?)Rent and rates ..............................12,800Machine insurance .........................6,000Telephone charges .........................3,200Depreciation .................................18,000Production supervisor?s salaries ?.24,000Heating and lighting .......................6,400......................................................70,400

The three production departments ? A, B and C, and the two service departments ? X and Y, are housed in the new premises, the details of which, together with other statistics and information, are given as follows:

Required:(a) Prepare a statement showing the overhead cost budgeted for each department, showing the basis of apportionment used. Also calculate suitable overhead absorption rates.(b) Two pieces of furniture are to be manufactured for customers. Direct costs are as follows:

Calculate the total costs of each job.(c) If the firm quotes prices to customers that reflect a required profit of 25 per cent on selling price, calculate the quoted selling price for each job.(d) If material costs are a significant part of total costs in a manufacturing company, describe a system of material control that might be used in order to effectively control costs, paying practical attention to the stock control aspect.

Transcribed Image Text:

Departments B х A Floor area occupied (sq. metres) Machine value (£000) 3000 1800 600 600 400 10 24 2 Direct labour hrs 1000 budgeted 3200 1800 Labour rates per hour £3.80 £3.50 £3.40 £3.00 £3.00 Allocated overheads: Specific to each department (£000) 1.2 2.8 1.7 0.8 0.6 Service department X's costs apportioned Service department 50% 25% 25% Y's costs apportioned 20% 30% 50% Job 123 Job 124 Direct material Direct labour £154 £108 20 hours Dept A 12 hours Dept B 10 hours Dept C 16 hours Dept A 10 hours Dept B 14 hours Dept C