Answer to Question #317010 in Microeconomics for lydia

Question

Sonja Cc is a small firm that makes outfits for customers tailored for their functions, in May 2021 she has ordered for a bridal party (BP)

The details for the job (BP) are as follow:

Direct materials: 10 units at N$108.

Direct labour: 16 hours for department A

10 hours for department B

14 hours for department C

The labour hours are budgeted at 40, 25 and 30 in departments A, B and C respectively.

The firm expect a profit of 40% on the total cost of BP.

Required:

a)Calculate the predetermined overhead allocation rate (OAR) for each department using labour hours as a base for such allocation.

b)Calculate the cost of a bridal party (BP)

c)Calculate the selling price of the bridal party (BP).

Answer 1

a)Calculate the predetermined overhead allocation rate (OAR) for each department using labour hours as a base for such allocation.

To calculate the overhead allocation rate;

$OAR = \frac{ total. overhead}{direct.labour.hours}$

Department A ;

$\frac{2500}{16}= 192.31$

Department B;

$\frac{2000}{10} = 200$

Department C;

$\frac{3000}{14} = 214.286$

b)Calculate the cost of a bridal party (BP)

Total variable cost = $10\times108 =1080$

=$16\times40= 640$

=$10\times25=250$

=$14\times30 = 420$

$=2390$ + $7500=9890$

b)Calculate the cost of a bridal party (BP)

$\frac{140\times 9890}{100}= 13846$

each$=\frac{13846}{10} = 1384.6$