Question

Epsilon Manufacturing Company uses a predetermined manufacturing overhead rate based on a percentage of direct labor cost. At the beginning of 2018, they estimated total manufacturing overhead costs at $1,015,000, and they estimated total direct labor costs at $1,400,000. The administration and selling overheads are to be absorbed in each job cost at 15% of production cost. Distribution cost should be added to each job according to quotes from outside carriage companies. The company wishes to quote for job # W500. Data for the job are as follows: Direct materials cost $169,450 Direct labour cost $230,000 Direct labour hours 400 hours Special Design Cost $12,300 Distribution quote from haulage company $17,930 Units of product produced 250 crates

a) Compute Epsilon Manufacturing Company predetermined manufacturing overhead rate for 2018.

b) How much manufacturing overhead was allocated to Job #W500?

c) Calculate the total cost & quotation price of Job #W500, given that a margin of 25% is applied.

d) How much was the production cost per unit (cost per crate) of finished product?

Answer 1

Predetermined Manufacturing Overhead Rate = Budgeted Manuturing Overhead / Estimated Total Direct Labour Cost

=(1015000/1400000)=72.50%

Manufacturing Overhead Allocated to Job W500= Direct Labour Cost * predetermined Overhead

=230000*72.5%=$166750

Computation of Total Cost for Job-W500 & Quotation price - Epsilon
Direct Material Cost	$169,450
Direct Labour	$230,000
Manufacturign Overhead	$166,750
Special Design Cost	$12,300
Total Productio Cost	$578,500
Administration & Selling Overhead Cost(15% of Production Cost)	$86,775
Disctribution Quote from Haulage	$17,930
Total Cost of Job	$683,205
Add: Manufacturign Margin @25%	$170,801
Quoted Price	$854,006

Production Cost per Unit = 578500/250=$2314