Answer: Total Manufacturing Cost of the job $ $
Direct material cost:
Department A 840
Department B <u>1,100</u> 1940
Direct labour cost:
Department A 610
Department B <u> 880 </u> 1490
Manufacturing overhead:
Department A ($14x 250) 3,500
Department B ($30 x 120) <u>3,600 </u> <u> 7,100</u>
Total manufacturing cost <u>10,530</u>
The correct answer is $10,530.
The overhead absorption rate for each department is calculated as:
Department A = $420,000/30,000 machine hours
= $14/machine hour
Department B = $600,000/20,000 direct labour hours
= $30/direct labour hour
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Explanation: In the question, the requirement is to determine the total manufacturing cost of the job. The examiner has provided the direct material cost, direct labour cost, machine hours and direct labour hours relating to the job. Thus, we need to add the direct material cost, direct labour cost and manufacturing overhead cost derived from the predetermined rate (absorption rate). The absorption rate for department A is based on machine hour while the absorption rate for department B is based on direct labour hour. The absorption rates are calculated from the company's estimates (budget) and it is calculated using the formula:
Overhead absorption rate = Budgeted overhead/Budgeted activity level
The budgeted activity level could be machine hours or direct labour hours.