(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.