1. Calculate the full cost of job number PCJ 61263, assuming overheads are charged to jobs on a direct labour hour basis. 2. Calculate the full cost of job number PCJ 61263, assumi... 1. Calculate the full cost of job number PCJ 61263, assuming overheads are charged to jobs on a direct labour hour basis. 2. Calculate the full cost of job number PCJ 61263, assuming overheads are charged to jobs on a machine hour basis.
Understand the Problem
The question is asking for the calculation of the full cost of a specific job, based on given overheads and labor conditions. It includes calculating the overhead absorption rate based on direct labor hours and also asks to calculate the costs if overheads are charged based on machine hours.
Answer
- Total cost using direct labor hours: £11,540 - Total cost using machine hours: £11,775
Answer for screen readers
The full cost of job number PCJ 61263 is:
- Based on direct labor hours: £11,540
- Based on machine hours: £11,775
Steps to Solve
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Calculate Overhead Absorption Rate Based on Direct Labor Hours
The overhead absorption rate can be calculated using the formula:
$$ \text{Overhead Absorption Rate} = \frac{\text{Total Monthly Overheads}}{\text{Total Direct Labour Hours per Month}} $$
Here, the total monthly overheads are £9,400 and the total direct labor hours per month are 4,000.
$$ \text{Overhead Absorption Rate} = \frac{£9,400}{4,000 \text{ hours}} = £2.35 \text{ per direct labor hour} $$
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Calculate Total Costs for Job PCJ 61263
To find the total cost, sum the costs of direct materials, direct labor, and overheads based on the overhead absorption rate calculated above.
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Direct Costs:
- Direct materials: £2,600
- Direct labor hours: 400
- Total labor cost:
$$ \text{Total Labor Cost} = \text{Direct Labor Hours} \times \text{Wage Rate} = 400 \text{ hours} \times £20/\text{hour} = £8,000 $$
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Total Overhead Costs:
- Total overheads for job:
$$ \text{Total Overhead Cost} = \text{Overhead Absorption Rate} \times \text{Direct Labor Hours} = £2.35 \times 400 = £940 $$
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Total Cost Calculation:
$$ \text{Total Cost} = \text{Direct Materials} + \text{Total Labor Cost} + \text{Total Overhead Cost} $$
$$ \text{Total Cost} = £2,600 + £8,000 + £940 = £11,540 $$
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Calculate Overhead Absorption Rate Based on Machine Hours
Now, calculate the overhead absorption rate based on machine hours:
$$ \text{Overhead Absorption Rate} = \frac{\text{Total Monthly Overheads}}{\text{Total Machine Hours per Month}} $$
Here the total machine hours are given as 800:
$$ \text{Overhead Absorption Rate} = \frac{£9,400}{800 \text{ hours}} = £11.75 \text{ per machine hour} $$
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Calculate Total Costs for Job PCJ 61263 Based on Machine Hours
- Total Overhead Costs:
$$ \text{Total Overhead Cost} = \text{Overhead Absorption Rate} \times \text{Machine Hours} = £11.75 \times 100 = £1,175 $$
- Total Cost Calculation:
$$ \text{Total Cost} = \text{Direct Materials} + \text{Total Labor Cost} + \text{Total Overhead Cost} $$
$$ \text{Total Cost} = £2,600 + £8,000 + £1,175 = £11,775 $$
The full cost of job number PCJ 61263 is:
- Based on direct labor hours: £11,540
- Based on machine hours: £11,775
More Information
This calculation highlights how overhead absorption rates can significantly affect cost estimates based on the method of absorption (labor vs. machine hours). Understanding this distinction is crucial for accurate job costing in businesses.
Tips
- Forgetting to include all components of costs: It's essential to sum all direct and overhead costs together for accurate total cost calculation.
- Miscalculating overhead absorption rates: Ensure you use the correct total hours for the type of overhead being allocated (labor vs. machine hours).
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