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

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Accounting

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You have been asked to suggest a method of deducing the full cost of various production orders of Patel 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: The business has 2 departments: Machining and Assembly. The following information will help you to split the Overhead costs between the 2 departments: 80% of Power cost goes to Machining department. The Assembly department needed 8,000 of Maintenance and repairs. The Factory head and light and Cleaning materials is split evenly between the departments. The assembly department used 80,000 hours of Direct Labor during the year. Depreciation of factory building is split evenly while the Machinery depreciation goes all to the Machining Department Indirect Labor is apportioned according to the Direct Labor proportions. All direct labour is paid the same hourly rate. Required: (a) Calculate two OH rates for the 2 departments. (b) Prepare full costings for Order No 101 using each of the rates calculated in (a)

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