Question 1

ABC Company produces T-shirts made out of special fabric. The company has received an order to
produce 2 categories of T-shirts. Category A will consume 3 meters of cloth and a total of 5000 t-
shirts will be produced. Category B will consume 5 meters of cloth and will amount to 3000 units of
production. The per meter cloth rates for category A is $20 and category B is $23. Labour hours
totalled to 6500 out of which 3500 hours were spent on Category A and 3000 on Category B. The
rate of Labour will be identical for both the products and will be charged at a rate of $15/hour.
Other Overheads include $15000 for Factory expenses, $6750 as depreciation expenses, $4750 for
insurance of the factory, $13000 for utilities and other expenses and $19111 paid for miscellaneous
expenses.

ABC has calculated their predetermined overhead charge to be $7 which is allocated based on
number of Labour hours.

Calculated the total cost of both the categories of T-shirts along with the treatment of over/under-
applied overheads in Trading account, assuming all the units were sold.

Question 2:

XYZ Ltd is a cement manufacturing plant producing 3 different types of cements. The company has
received a Job order to produce 570 units of Type 1, 455 units of Type 2 and 876 units of Type 3.
During the month of production, Type 1 cement had already consumed $38000 worth of raw
material and another $ 21000 was procured for the order. For Type 2 and 3, $48,700 worth of total
Raw material was signed over on requisition form out of which $27000 was for Type 2 and 21700 for
type 3. For all the types there was an additional indirect material required of $7500.

XYZ Ltd had direct labours charges amounting to $158000 out of which, $51000 was for Type 1 and
$7000 were indirect labour charges. The remaining amount was divided between Type 2 and Type 3
on a ratio of 30:70. Factory overheads for the duration of the order totalled to $64800. XYZ Ltd has a
predetermined rate of $9 for their overheads and the allocation base for this expense is considered
to be direct machine hours.

Calculate the total cost of 3 Types of Cements while providing the entries for over/under-applied
overhead considering the following:

 The company sold 78% of Type 1, 90 of Type 2 and Type 3 was still in process so did not sell
for the month.
 The machine hours worked during the month were 87000 which were divided in the ratio of
40: 30 : 30.