QUESTION 24 – SOLUTION: MANNIX PLC

(a) Blanket overhead rate = €470,000 ÷ 21,000 DLH = 22.38 DLH

Direct materials € 80.00

Direct labour (W1) € 81.00
Overhead (9 x €22.38) €201.42
Total Production Cost €362.42

(b) Departmental Overhead Rates:

Department X = €320,000 ÷ 16,000 DLH = €20 per DLH

Department Y = €150,000 ÷ 30,000 MH = €5 per MH

Total production cost for order No. 679:

Direct materials € 80
Direct labour(W1) € 81
Production overhead:
Dept X (6 x €20) €120
Dept Y (14 x €5) € 70
Total Production Cost €351

Workings

W1 Labour Hours

Product X Direct Labour is 6 hours x (160,000/16,000) = 60

Product Y Direct Labour is 3 hours x (35,000/5,000) = 21

Brief discussion on reasons for differences between (a) and (b)

QUESTION 25 – SOLUTION: LIMA PRODUCTS

(a) Direct materials €15,000.00

Direct labour € 9,600.00
Production overhead (80% x €9600) € 7,680.00
Total production cost €32,280.00
Admin and selling (25%) € 8,070.00
Total Cost (80% of SP) €40,350.00
Profit (20% of SP) €10,087.50
SELLING PRICE (100%) €50,437.50

(b) Class discussion on cost-plus approach to pricing

QUESTION 26 – SOLUTION: WEXFORD COMPANY

(a) Overhead rate for 2004 = €5,700,000 ÷ 380,000 MH = €15 per MH

(b) Overhead applied during 2004:

Actual machine hours x overhead rate = 390,000 x €15 = €5,850,000

(c) Under/over application of overhead:

Actual overhead €5,820,000

Overhead applied (see part b) €5,850,000
Overhead Over-applied € 30,000

(d) Brief class discussion (already covered in lecture)

QUESTION 27 – SOLUTION: FELIX COMPANY

Overhead Rates:

Machining Department: €1,800,000 ÷ 50,000 MH = €36 per MH

Assembly Department: €3,600,000 ÷ €2,000,000 = €1.80 per €1 of labour cost

a. Manufacturing overhead cost of job 494:

Machining Department: (2,000 MH x €36) = €72,000

Assembly Department: (€1.80 x €15,000) = €27,000
€99,000

b. Under- or Over-application of Overheads

Machining Assembly
Actual Overhead €2,200,000 €3,800,000
Overhead Applied:
Machining (55,000 MH x €36) €1,980,000
Assembly (€1.80 x €2,300,000) €4,140,000
Under-applied € 220,000
Over-applied € 340,000

c. Brief class discussion

 SOLUTION:Q.28 - SANDCLIFFE & CO.

(a) Overhead absorption rate:

Overhead/Labour cost = €19m/€10m = 190%

(b) Amended overhead absorption rate:

Overhead/labour cost = €12m/€10m = 120%

(c) i. Using original absorption rate (190%)

Case 304 Case 308

Direct labour €20,000 €20,000
Overhead €38,000 €38,000
Total cost €58,000 €58,000

ii. Using the amended overhead rate (120%)

Case 304 Case 308

Direct labour €20,000 €20,000
Direct costs € 9,000 €17,000
Overhead €24,000 €24,000
Total cost €53,000 €61,000
Mark-up €10,600 €12,200
(d) Price €63,600 €73,200
Solution Q29. Pop up
Part A
Basis of
Cutting Stitching Finishing Total
Overhead Apportionment

Indirect wages Given 31,000 23,000 18,000 72,000

Heating and Air- Floor area (square
28,481 23,734 22,785 75,000
conditioning metres)
Factory Floor area (square
9,494 7,911 7,595 25,000
Insurance metres)
Floor area (square
Factory Rent 18,608 15,506 14,886 49,000
metres)
Machine Value of machinery
62,500
Depreciation (€) 25,568 28,409 8,523
Kilowatt hours (%
Power 96,000
usage) 43,200 43,200 9,600
Value of stores
Stores costs 44,120
issues (€) 28,678 12,354 3,088
Maintenance Machine hours 9,196 12,261 613 22,070
194,224 166,376 85,090 445,690

Machine hours 15,000 20,000

Direct labour
11,000
hours
OHAR 12.95 8.32 7.74
per per
machine machine per DLH
hour hour
Part B
Price of Order
Direct
materials 560
Direct labour
W1:
Cutting 1 hour *13 13
Stitching 1 hour *11.25 11.25
Finishing 1.5 hour*8 12
OH
Machine hours
Cutting 2 hour*12.95 25.9
Stitching 3 hour*8.32 24.96
Labour hours
Finishing 1.5 hour*7.74 11.61
Total product
cost 658.72
+25% 823.40
W1
Labour rate per
hour
Direct Wages 65,000 45,000 88,000
Direct labour
5,000 4,000 11,000
hours
13.00 11.25 8.0

Part C
I. Points include:
The initial objective of ABC when it appeared in the literature towards the mid-
1980s was to provide more accurate costing of products and services for a whole
range of managerial decisions, including pricing and allocation of advertising
resources.
Rather than use a single base for assigning overheads, such as direct labour hours
or machine hours, activity-based costing uses a number of bases for assigning
overheads to products. Each base in an ABC system represents a major activity
that causes overhead costs.

The steps involved in the ABC approach are as follows.

1. Identify major activities
2. Group costs of activities into cost pools
3. Identify measures of activities – the cost drivers
4. Relate costs to products using the cost drivers.

II. Points include:

Companies that have some of the following characteristics are most likely to benefit from
ABC:
1. Products differ substantially in volume and in the activities they require.
2. Overhead costs are high and increasing, and no one seems to understand why.
3. Management does not trust the existing cost system and ignores cost data from the
system when making decisions.
Pop-up’s budgeted overhead costs are budgeted at €373,690 for 2016, this is significant in
relation to its labour cost (€270,000). However, we can see from order GB147 (part b) above
that material costs make up the majority (72%) of the cost of producing an order. In addition,
Pop-up is a medium sized company that manufactures reasonable similar products. Given that
ABC is a costly system to implement and run, it is unlikely that Pop-up would realise
significant benefits from introducing ABC at this stage.
 SOLUTION Q30 BEDROOM FURNITURE MANUFACTURER

a)

Dept P Dept Q Dept R

€ € €
Repairs, etc. 42,000 10,000 10,000
Depreciation 17,000 14,000 9,000
Supplies 4,500 2,700 1,800
Wage-related costs 48,250 26,250 12,500
Indirect labour 45,000 27,000 18,000
Canteen 15,000 9,000 6,000
Rates/Insurance 13,000 10,400 2,600
Total €184,750 €99,350 €59,900

Labour Hours 50,000 30,000 20,000

OHAR €3.70 €3.31 €3.00

b) Job 976

Direct material €800.00

Direct Wages:
P (30 x €7.72)
Q (10 x €7.00)
R (5 x €5.00) €326.60
Overhead:
P (30 x €3.70)
Q (10 x €3.31)
R (5 x €3.00) €159.10

Total costs €1,285.70

Selling, Dist. & Admin.(20% x €1,285.70) 257.14
€1,542.84
Profit (25% x €1,542.84) 385.71
Selling price 1,928.55

c) Job 976 – Auditors System

Direct materials €800.00

Direct wages €326.60
Prime cost €1,126.60
Add 125% x 1,126.60 €1,408.25
Selling price €2,534.85
 SOLUTION: Q.31 - LABURNUM LTD.

(a)
Production Production Production Production Total
Group A Group B Group C Group D
€ € € € €
Indirect Materials 500 2,000 1,000 5,500 9,000
Maintenance 1,000 5,000 3,000 10,000 19,000
Rent & Rates 2,000 6,000 3,200 8,800 20,000 Area Occ
Building 1,200 3,600 1,920 5,280 12,000 Area Occ
Insurance
Insurance of M/c 938 3,750 2,812 7,500 15,000 Book
Val
Electricity 4,500 9,375 6,750 9,375 30,000 Work
Hrs.
Supervision 6,000 12,500 9,000 12,500 40,000 Work
Hrs.
16,138 42,225 27,682 58,955 145,000

Hours Worked 1,200 Hrs. 2,500 Hrs. 1,800 Hrs. 2,500 Hrs.

Rate per Hour €13.45 €16.89 €15.38 €23.58

(b) Overhead absorbed by Product X.

€ €
Group A 13.45 x 3 = 40.35
Group B 16.89 x 7 = 118.23
Group C 15.38 x 2 = 30.76
Group D 23.58 x 4 = 94.32
283.66

(c) Product X.

€
Raw Materials 340.00
Overheads 283.66
Total Cost 623.66
Mark-up (40%) 249.46
Selling Price 873.12
 SOLUTION: Q32 – COMMERCE CONTRACTORS LTD.
Job No.of Total Work in Finished Finished Cost of
Order units Progress Production Goods Goods
No. Inventory Sold
Job Cards

Materials Labour Overhead

Applied
€ € € € € € € €
81 100 10,000 4,000 3,200 17,200 - 17,200 - 17,200
82 200 15,000 8,500 7,200 30,700 - 30,700 15,350 15,350
83 100 12,000 6,000 4,800 22,800 - 22,800 17,100 5,700
84 400 16,000 4,200 3,200 23,400 23,400 ______ ______ _____
53,000 22,700 18,400 94,100 23,400 70,700 32,450 38,250
Opening inventory per Finished Goods Control €40,000 20,000 20,000
52,450 58,250

Creditors Control
€ €
Bank 50,000 Balance b/d 10,000
Balance c/d 20,000 Purchases *60,000
70,000 70,000
Balance b/d 20,000
Stores Control
Balance b/d 20,000 W i P – Issues 53,000
Purchases 60,000 Balance c/d *27,000
80,000 80,000
Balance b/d 27,000
Work in Progress Control
Materials 53,000 Finished Goods Control 70,700
Labour 22,700 Balance c/d 23,400
Factory overhead (applied) 18,400 _____
94,100 94,100
Balance b/d 23,400

Finished Goods Control

Balance b/d 40,000 Cost of Goods Sold 58,250
W i P Control 70,700 Balance c/d 52,450
110,700 110,700
Balance b/d 52,450

Factory Overhead Control

Bank etc. 19,000 W i P control – overhead applied 18,400
______ Cost of goods sold 600
19,000 19,000
 Cost of Goods Sold
Finished Goods Control 58,250 Profit and Loss A/c 58,850
Factory Overhead Control 600 ______
58,850 58,850
 SOLUTION: Q.33 – APEX COMPANY

Creditors Control
€ €
Bank 14,000 Balance b/d 10,000
Balance c/d 12,000 Stores 16,000
26,000 26,000

Stores Control
Balance b/d 12,000 WiP 14,000
Creditors 16,000 Balance c/d 14,000
28,000 28,000

Work in Progress
Balance b/d 10,000 Fin Goods 49,000
Stores 14,000 Balance c/d 7,000
Labour 20,000
Applied O/H 12,000 _____
56,000 56,000

Finished Goods
Balance b/d 17,000 Cost of Sales 45,000
WiP 49,000 Balance c/d 21,000
66,000 66,000

Cost of Sales
Fin Goods 45,000 P/L 46,000
U’App’d. O/H 1,000 _____
46,000 46,000

Overhead Control
Actual O/H 13,000 W i P Applied 12,000
_____ Cost of Sales (U’App’d. O/H) 1,000
13,000 13,000

Gross Profit: 60,000 – 46,000 €14,000

 SOLUTION: Q. 34 – RANDOLPH COMPANY

Creditors Control
€ €
Bank 56 Balance b/d 16
Balance c/d 18 Stores 58
74 74

Stores Control
Balance b/d 18 WiP 55
Creditors 58 Balance c/d 21
76 76

Work in Progress
Balance b/d 15 Fin Goods 150
Stores 55 Balance c/d 10
Labour 50
Applied O/H 40 ___
160 160

Finished Goods
Balance b/d 27 Cost Sales 145
WiP 150 Balance c/d 32
177 177

Cost of Sales
Fin Goods 145 O’App’d O/H 2
___ P/L 143
145 145

Overhead Control
Actual O/H 38 W i P Applied 40
CoS Overapp 2 ___
40 40

Gross Profit: 200 – 143 = €57

 SOLUTION: Q. 35

Item 1.

The cost of raw materials purchased in March was:

(a) €10,000
Item 2.

The cost of materials issued to production in March was:

(a) € 9,000

Item 3.

The direct labour cost in March was:

(a) €10,000

Item 4.

The applied overhead in March was:

(a) € 5,000

Item 5

In March overhead was:

(a) Underapplied by €1,000

Item 6

(a) €15,000
 SOLUTION: Q. 35 cont’d
Creditors Control
€ €
Bank 9,000 Balance b/d 10,000
Balance c/d 11,000 Stores 10,000
20,000 20,000

Stores Control
Balance b/d 15,000 W i P 9,000
Creditors 10,000 Balance c/d 16,000
25,000 25,000

Work in Progress
Balance b/d 8,000 Fin Goods 23,000
Stores 9,000 Balance c/d 9,000
Labour and Applied Overhead 15,000

32,000 32,000

Finished Goods
Balance b/d 14,000 Cost Sales 24,000
WiP 23,000 Balance c/d 13,000
37,000 37,000

Cost of Sales
Fin Goods 24,000
U’App’d O/H 1,000 Income Statement 25,000
25,000 25,000

Overhead Control
Actual O/H 6,000 W i P Applied 5,000
CoS Underapp 1,000
6,000 6,000

Labour and Overhead Split

W1
Labour and overhead = 150% 15,000
Labour =100% 10,000
Overhead = 50% 5,000

Gross Profit = 40,000 – 25,000 15,000