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You have been asked to suggest a method of deducing the full cost of various...

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Accounting

You have been asked to suggest a method of deducing the full cost of various production orders of Basil Ltd. This method will be used as a basis for setting prices. The production orders vary greatly in size and nature from one to the next.The following information has been taken from the budget for the forthcoming financial year:Direct labour 400,000Direct materials 100,000Overheads450,000Direct materials10,000 kgDirect labour hours50,000 hoursMachine hours45,000 hoursThe business is not departmentalised for accounting purposes.All direct labour is paid the same hourly rate. Basil Ltd has currently receiveda new orderwhich has the following costs:Direct materials450 kgDirect labour hours2,000 hoursMachine hours500 hoursRequired:(a) Prepare full costingsfor new order using the following methods allocating total overheads:-overhead rate based on labour hour basis-overhead rate based on machine hour basis(b)State briefly which of the two bases of overheads you prefer and why.

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