Question

1. The production department of a National Detergents where detergents are produced, furnishes the following information for the month of January.

Material used	OMR 13,500
Direct wages	OMR 11,250
Labor hours worked	9,000
Hours of machine operation	7,500
Overhead cost	9,000

      For a job order executed by department during the period, the relevant information further provided is:

Material used	OMR 1,500
Direct wages	OMR 800
Labor hours worked	800
Hours of machine operation	600

           

      If you are the production head of the factory, how would you charge overhead to the job on order by using the following methods:

1. Percentage of direct materials cost
2. Percentage of labor hour cost
3. Direct labor hour rate
4. Machine hour rate                                                                  

2. In the above problem, there are three elements of cost given, being the production head, classify and explain these three elements of cost based on controllability to the staff of production department.

Answer 1

Basis	Budgeted overhead	Divided by	Allocation Base	=	Allocation Rate
Percentage of direct materials cost	9000	/	13500	=	66.67%
Percentage of labor hour cost	9000	/	11250	=	80.00%
Direct labor hour rate	9000	/	9000	=	1
Machine hour rate	9000	/	7500	=	1.2

Allocation of Overhead to Job
Basis	Allocation Rate A	Actual level of activities for the job B	Overhead Alloacted (A X B)
Percentage of direct materials cost	66.67%	1500	1000
Percentage of labor hour cost	80.00%	800	640
Direct labor hour rate	100.00%	800	800
Machine hour rate	120.00%	600	720

In the above problem, there are three elements of cost given, being the production head, classify and explain these three elements of cost based on controllability to the staff of production department.

Generarly all direct Cost are contollable hence we can say direct material and direct labor are controllable cost .