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

1. Compute Epsilon Manufacturing Company predetermined manufacturing overhead rate for

2018.

2. How much manufacturing overhead was allocated to Job #W500?
3. 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

SOLUTION

1. Predetermined Manufacturing Overhead Rate = Estimated total manufacturing overhead costs / Estimated Direct Labor Costs

= $1,015,000 / $1,400,000 = 72.50% of Direct Labor Costs

2. Allocated Manufacturing Overhead to Job #W500 = Direct Labor Costs related to Job 500 * 72.50%

= $230,000 * 72.0% = $166,750

3.

Particulars	Amount ($)
Direct materials cost	$169,450
Direct labor costs	$230,000
Specific Design Cost	12,300
Prime Costs	411,750
Applied Manufacturing Overhead	166,750
Total Manufacturing Costs	578,500
Administration and Selling Overheads (578,500*15%)	86,775
Plus: Distribution charges	17,930
Total Cost	683,205
Plus: Margin @ 25%	170,801
Selling Price / Quotation Price	854,006

4. Production Cost per unit = Total Manufacturing Costs / Units Produced

= 578,500 / 250 = 2,314