Sorter has the following costs

Cost Answer Cost Answer

i. depreciation on office
a. machine workers’ wages
furniture
j. computer running
b. cost clerks’ wages
expenses for office

c. purchase of raw material k. loan interest

d. machine repairs l. auditors’ fees

m. depreciation on factory
e. finance director’s salary machinery
f. office cleaners n. advertising costs
o. electricity for factory
g. delivery van staff’s wages
machinery
h. managing director’s car
expenses p. bank charges

Required:
Analysis of sorter’s costs between:
i.             direct material
ii.           direct labour
iii.          production overheads
iv.          administrative overhead
selling and distribution costs
From the following information can you work out the cost and fees for each client meeting for a management consultancy fi
a.    Consultant’s rate: £100
b.   Total administrative overheads £30,000
c.    Advertising and marketing expense: £ £20,000
d.   1,000 meetings took place. Profit mark-up of 20% of total cost
r a management consultancy firm?
Absorption costing notes:
Steps in traditional absorption costing:
1.     Record all costs
2.    Classify all costs
3.    Allocate all indirect costs to the departments (cost centres) of a business
4.    Reallocate costs from service support departments to production departments
5.    Calculate an overhead recovery rate
6.    Absorb both the direct costs and the indirect costs (or overheads) into individual products

Contra Ltd manufactures and assembles hand-made computer tablets, A and B, and has three departments:
a.    Production
b.   Assembly
c.    Administration and support
Admin and
Departments à Production Assembly
support
Direct labour cost £10,000 £20,000 £6,000
Direct labour hours 2,000 3,000 500
Direct labour hour rate per hour £5 £6.67 £12
Rent and rates: £10,000
Floor area in square feet 5,000 4,000 1,000
Number of computers manufactured:
Product A: 600
Product B: 400
Labour hours per unit of A 30 minutes 1 hour
Labour hours per unit of B 1 hour 30 minutes 2 hours
Material cost per unit of A £24
Material cost per unit of B £36
Proportion of services of admin department by production
70% 30%
and assembly.
Profit mark-up on cost:
A1: 20%
B1: 30%
Overheads are absorbed using direct labour hours
Required: Complete the following answer format and calculate selling price for A1 and B1

Answer
Step 1 and 2 done.
Step 3: overhead allocation to departments

Type of cost Allocation basis Total Production

Rent and rates

Total
Step 4: reallocation of service department to production department

Total Production Assembly

Total overheads
Reallocation (70%, 30%)
New total

Step 5: overhead recovery rate

Total Production Assembly
Total overheads
Direct labour hours
Recovery rate

Step 6: Absorption of costs into products

A:
£
Direct material
Direct labour Production:
Assembly:
Prime cost
Overheads Production:
Assembly:
Total cost
Profit mark-up at 20%
Selling price

B:
£
Direct material
Direct labour Production:
Assembly:
Prime cost
Overheads Production:
Assembly:
Total cost
Profit mark-up at 30%
Selling price
Assembly Admin and support
Admin
and
support
Fireco has the following costs: for settng up machinery £8,000, for ordering material £3,000, for inspecting the material £2,000
Setting up machine £8,000
Ordering material £3,000
Inspection of material £2,000
Sales ledger expnese £8,000
Selling price is cost plus 25%
Additional information is as follows:
A B Total
Direct material £8,000 £7,000 £15,000
Directo labour £10,000 £15,000 £25,000
Number of set-ups 20 30 50
number of purchase orders 4000 1000 5000
Number or insepections 100 150 250
Number of sales invoices processed 7000 3000 10000
Number of products 16000 10000 26000

What would be the activity-cost driver rates, total cost and selling price?
Answer
Assume steps 1-4 (recording, classifying, and indentifying cost drivers with associated costs) are completed
Step 5: Calculation of Activity-cost driver rates:

Purchase Inspection Sales

Activity Set-ups orders s ledger

Cost
--------- --------- --------- ---------
Cost driver

Cost per unit of cost driver #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Per Per
purchase Per inovice
Per set-up order inspection processed

Step 6: Absorb both the direct and indirect costs into the products

Purchase Inspection Sales

Activity Set-ups orders s ledger Total OH
Product
A 0
B 0
Total 0 0 0 0

Overhead per product

A B
Total overheads 0 0
--------- ---------
Number of products

Overhead per product

Cost and selling price per product

A B
Direct material
Direct labour
Prime cost £ - £ -
Overheads
Total cost £ - £ -
Profit (25% mark-up on cost)
Selling price £ - £ -
cting the material £2,000 and sales