Bonne Nuit Ltd manufacture and sell top quality beds and mattresses. In the mattresses department, Bonne Nuit
Question:
Bonne Nuit Ltd manufacture and sell top quality beds and mattresses. In the mattresses department, Bonne Nuit make pocket sprung, foam and latex mattresses. In the past, they have used absorption costing system to allocate overhead costs to their products, with labour hours as the allocation base. The following information relates to the production and sale of the three mattresses.
Pocket sprung | Foam | Latex | |
Selling price per unit | £1,000 | £750 | £2,150 |
Direct material cost per unit | £238.50 | £156 | £219.60 |
Direct labour cost per unit | £90 | £60 | £150 |
Direct labour hours to make one unit | 8 | 6 | 10 |
Annual production (units) | 1,440 | 2,296 | 1,400 |
Number of set ups per annum | 180 | 60 | 60 |
Number of purchase orders per annum | 200 | 320 | 80 |
Production overhead costs consist of:
Output related overheads £1,350,000
Quality control £1,100,000
Machine set up overheads £1,346,396
Procurement costs £172,500
Total £3,968,896
Bonne Nuit have found that their competitors use another method, activity-based costing system, to allocate their overhead costs. They want to see if there is a difference in the costing of their products when activity-based costing is used.
Using absorption costing system, find out the overhead absorption rate per direct labour hour?
Statistics for Business and Economics
ISBN: 978-0321826237
12th edition
Authors: James T. McClave, P. George Benson, Terry T Sincich