(a) Lockdown Ltd manufactures three products (X, Y and Z) in two departments; machine shop and fitting section: It also has two service departments; canteen and machine maintenance section. Next...


(a) Lockdown Ltd manufactures three products (X, Y and Z) in two departments; machine shop and fitting section: It also has two service departments; canteen and machine maintenance section.




Next year’s budgeted production data and manufacturing costs for the company are shown below:



Product Product Product



X Y Z


Production 4,200 units’ 6,900 units 1,700 units


Prime cost per unit:


Direct materials K220 K280 K340



Direct labour:



Machine shop K120 K80 K40



Fitting section K240 K60 K420


Machine hours per unit 6 hours 3 hours 4 hours



Machine Fitting Maintenance



Shop section Canteen section Total


Allocated overheads (K) 553,200 389,400332,000 533,000 1,807,600


Rent, rates, heat and light 340,000


Equipment insurance 500,000


Additional data:


Equipment book value (K) 3,000,000 1,500,000 600,000 900,000


Number of employees 18 14 4 4


Floor space (square meters) 3,600 1,400 1,000 800


It has been estimated that approximately 70% of the machine maintenance section’s costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.


Lockdown Ltd recovers production overheads using a plant wide absorption rate per machine hour and adds 20% profit margin to unit cost to establish the selling price per unit.



You are required to:


(i) Prepare an overhead analysis statement


(ii) Calculate a machine hour plant wide overhead absorption rate


(iii) Determine the production cost per unit for each of the three products


(iv) Compute appropriate selling price per unit for each product.

May 25, 2022
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