basis Department A B C X Y

Floor area Rent and rates 6 000 3 600 1 200 1 200 800

Machine value Machine insurance 3 000 1 250 1 000 500 250

Labour hours Telephone charges 1 500 900 300 300 200

Machine value depreciation 9 000 3 750 3 000 1 500 750

Labour rates per hour Preoduction salaries 12 800 7 200 4 000

Floor are Heating and lighting 3 000 1 800 600 600 400

Allocated overheads 2 800 1 700 1 200 800 600

total 38 100 20 200 11 300 4 900 3 000

Reapportionment X 2 450 1 225 1 225

50:25:25
TOTAL 40 550 21 425 12 525

Reapportionment Y 600 900 1 500

20:30:50
TOTAL 41 150 22 325 14 025
(b) Two pieces of furniture are to be manufactured for
customers. Direct
costs are as follows:
job 123 job 124

Direct Material £154 £108

Direct Labour 20 hours Dept A 16 hours Dept
A
12 hours Dept B 10 hours Dept
B
10 hours Dept C 14 hours Dept
 Job 123 Job 124

£ £

Direct material 154. 00 108.00

Direct labour: [hours x labour rates per hour]

Department A 76.00 60.80

Department B 42.00 35.00

Department C 34.00 47.60

Total direct cost 306.00 251.40

Overhead:

Department A 257.20 205.76

Department B 148.80 124.00

Department C 140.20 196.28

Total cost 852.20 777.44

Profit 284.07 259.15

Overhead = Absorption Rate x Labour Hours
• 12.86 x 20 = 257.20
• 12.14 x 12 = 148.80
• 14.02 x 10 = 140.20
(c) If the firm quote prices to customers that reflect a required
profit of 25%
on selling price, calculate the quoted selling price for each
job.
Cost + Profit = Selling Price
Cost + (0.25)SP = SP
Cost = 0.75SP
Cost/0.75 = SP
Job 123 = £1136.27
Job 124 = £1036.59
b. To effectively control costs, a just-in-time (JIT)
inventory control system might be used. In JIT,
materials are ordered and received just in time for
production. This minimizes holding costs and reduces
the risk of obsolete inventory. The focus is on reducing
waste, improving efficiency, and maintaining a lean
inventory. This approach requires close coordination
with suppliers and efficient production processes to
ensure materials are available precisely when needed.
Total ordering cost = (Annual demand / EOQ) *
Ordering cost per order
Total holding cost = (EOQ / 2) * Holding cost per
unit
Total ordering and holding costs per annum = Total
ordering cost + Total holding cost
Let's calculate it:
Total ordering cost = (26,000 / 2600) * 160
Total ordering cost ≈ 1600
Total holding cost = (26,00)*(16)/2
Total holding cost ≈ 1820
Total ordering and holding costs per annum ≈ 1600
+ 1820
Total ordering and holding costs per annum ≈ 3420
So, the answer to question b is D. $3420.