Blue Bell Jacket Company Pty Ltd has provided the following information relating to the factory overhead budget for the coming year:

Cost component

Fixed $

Variable $

Cost driver

Supervision	96,000
Insurance	15,000
Depreciation	9,000
Maintenance		0.40	Per machine hour
Power		2.00	Per machine hour
Cleaning		$1.00	Per direct labour hour
Indirect materials		$1.50	Per unit
Other variable overhead		$0.75	Per unit

NOTE: To make one unit it takes 30 minutes of machine time and 2 hours of direct labour.

Workings
	Normal	Expected
Units	30,000	28,500
Machine hours	15000	14250
Direct labour	60000	57000

Blue Bell Jacket Company Pty Ltd
Factory overhead Budget
	Normal	Expected
Production Units	30,000	28,500
Cost Component
Fixed:
Supervison	$ 96,000	$ 96,000
Insurance	$ 15,000	$ 15,000
Depreciation	$ 9,000	$ 9,000
Total Fixed Costs	$ 120,000	$ 120,000
Variable:
Maintenance	$ 6,000	$ 5,700
Power	$ 30,000	$ 28,500
Cleaning	$ 60,000	$ 57,000
Indirect materials	$ 45,000	$ 42,750
Other variable overhead	$ 22,500	$ 21,375
Total Variable Costs	$ 163,500	$ 155,325
Total Factory Overhead Costs	$ 283,500	$ 275,325
Overhead Rate	$ 18.90	$ 19.32
Driver:	MH	MH

It has been decided to apply overheads to production using direct labour hours. 

Prepare a structured report to management showing:

• an explanation to management on the factors causing the change in the factory overhead application rates and the effect of choosing the incorrect rates on sales price, profitability and inventory valuation.

Document your report using the template provided below.

Introduction:

(Provide an overview of the purpose of the report)

Body:

(Provide an overview of the procedure that was utilised for evaluation, key stakeholders engaged in the reporting, etc.)

Conclusion and recommendations:

(Provide an overview of the results of the evaluation and any recommendations.)

Answer rating: 100% (QA)

Introduction The purpose of this report is to explain the factors that have caused a change in the factory overhead application rates for Blue Bell Jacket Company Pty Ltd Additionally we will discuss ... View the full answer