Jardine Ltd is developing factory overhead rates for the coming year. Budgeted overhead costs for the five factory departments are as follows:
|Cost ($)||Cost Driver|
|Finishing||84,600||Direct labour hours|
|Factory office||37,800||No. of employees|
Estimated operating statistics for the coming year are:
|Departments||Repair hours||No. of Requisitions||No. of employees||Machine hours||Direct labour Hours|
- Calculate a plant-wide overhead rate based on direct labour hours.
- Calculate departmental overhead rates assuming the support departments’ costs are allocated using the direct method.
|Total||Milling||Finishing||Maintenance||Factory Storeroom||Factory office|
Departmental rate: Milling =
Departmental rate: Finishing =
Inspired Ltd manufactures spurs. Organisation policy requires Factory overhead to be applied to the production of spurs using a predetermined rate based on budgeted direct labour hours. Budgeted cost of production (for 30,000 units) for the year to 30 June 2015 was:
|Direct materials||$ 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.
- Calculate the factory overhead application rate (per direct labour hour) for the year.
- Calculate the total amount of factory overhead for the year applied to the production of spurs.
- Analyse under or over-applied overhead into two variances. Your answer must name the two variances and indicate whether they are favourable/unfavourable.
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:
Required: (Consider each part independently)
- Calculate the annual breakeven point in unit sales.
- 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.
- Calculate how many burgers must be sold to achieve a target profit before tax of $167,840.
- Calculate how many burgers need to be sold to achieve an after-tax profit of $126,000 if the tax rate is 30%.
- If the budget is to sell 300,000 burgers, what is the Margin of Safety?
- 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.
- Calculate the annual new breakeven point in dollar sales is the investment is made.
- Advise Mrs Mac whether she should invest the capital or not, providing the reason for your conclusion.
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