Question 1

 Jardine Ltd is developing factory overhead rates for the coming year.  Budgeted overhead costs for the five factory departments are as follows:

  Cost ($)   Cost Driver
Milling     79,500   Machine hours
Finishing     84,600   Direct labour hours
Maintenance     40,500   Repair hours
Factory storeroom     52,800   Requisitions
Factory office     37,800   No. of employees
Total $295,200    


Estimated operating statistics for the coming year are:

Departments Repair hours No. of Requisitions No. of employees Machine hours Direct labour Hours
Milling 5,000 420 10 7,500 12,750
Finishing 2,500 240 8 4,000 11,250
Maintenance 400 80 2    
Factory storeroom 600 40 2    
Factory office 200 40 2    
Total 8,700 820 24 11,500 24,000



  1. Calculate a plant-wide overhead rate based on direct labour hours.
  2. Calculate departmental overhead rates assuming the support departments’ costs are allocated using the direct method.


  Total Milling Finishing Maintenance Factory Storeroom Factory office
Budgeted Costs   79,500 84,600 40,500 52,800 37,800
Factory storeroom            
Factory office            

Departmental rate: Milling      =

Departmental rate: Finishing =



Question 2

Inspired Ltd manufactures spurs.  Organisation policy requires Factory overhead to be applied to the production of spurs using a predetermined rate based on budgeted direct labour hours. Budgeted cost of production (for 30,000 units) for the year to 30 June 2015 was:


Direct materials $ 225,000
Direct labour (6,000 hours) 75,000
Fixed factory overhead 39,000
Variable factory overhead 30,000


Actual factory overhead incurred in the year to 30 June 2015 was $72,000. Actual direct labour hours were 6,100.



  1. Calculate the factory overhead application rate (per direct labour hour) for the year.
  2. Calculate the total amount of factory overhead for the year applied to the production of spurs.
  3. Analyse under or over-applied overhead into two variances. Your answer must name the two variances and indicate whether they are favourable/unfavourable.


Question 3

Mrs Mac sells burgers and is considering whether to open a new outlet. The burgers have a single selling price and identical costs, regardless of where they are produced.  Organisational policy dictates that a new outlet will only be opened if predicted profit is greater than $50,000.


The following data is supplied:

Variable data per burger:

Selling Price                                        $6.00

Purchase Costs                                  $3.90

Selling & Promotional Costs               $0.50

Annual Fixed Costs:

Rent                                                    $60,000

Salaries                                               $160,000

Other                                                   $100,000


Required: (Consider each part independently)

  1. Calculate the annual breakeven point in unit sales.
  2. Mrs Mac predicts that 220,000 burgers will be sold. Calculate the profit or loss and advise (based on organisational policy) whether the new outlet should be opened.
  3. Calculate how many burgers must be sold to achieve a target profit before tax of $167,840.
  4. Calculate how many burgers need to be sold to achieve an after-tax profit of $126,000 if the tax rate is 30%.
  5. If the budget is to sell 300,000 burgers, what is the Margin of Safety?
  6. By investing more capital for equipment, the business would be able to reduce selling costs to $0.40 per unit, with a 15% increase in Other Fixed Costs.
    1. Calculate the annual new breakeven point in dollar sales is the investment is made.
    2. Advise Mrs Mac whether she should invest the capital or not, providing the reason for your conclusion.

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