Budgeting - query on practice asssessment task 4 - variable production overhead

dalmatian
dalmatian Registered Posts: 37 New contributor ?
How do we work out the variable production overhead, for eg. variable overhead relates to labour hours, including overtime - which is in Practice Assessment 2 in Osborne's Preparing and Using Budgets Workbook.

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  • dalmatian
    dalmatian Registered Posts: 37 New contributor ?
    each unit is made from 1.6kg of material costing £0.60 per kg.
    It takes 3 minutes to make each item.
    1500 hours of basic time are available in the month. Any extra hours must be worked in overtime.
    The basic rate is £12 per hour Overtime is paid at £18 per hour.
    Variable overhead rela
    tes to labour hours, including overtime.
    Fixed production overhead costs are spread evenly through the year.

    Variable production overhead is £95,000. Fixed prod ohd is £252000. Direct labour £250,000. Units product in year 380,000 and 35,00 of that in March.
  • wabisabi
    wabisabi Registered Posts: 130 ? ? ?
    (1) work out how many labour hours were used in the year: take the total units for the year and divide it by the number of units that can be produced in an hour. (2) Divide the overheads for the year by the figure you have just calculated. (3) Multiply this last figure by the labour hours in the month you are calculating (you will probably have to work this out too (using the same technique as step 1).
    cfoden
  • dalmatian
    dalmatian Registered Posts: 37 New contributor ?
    You are spot on =). Thanks very much.
  • wabisabi
    wabisabi Registered Posts: 130 ? ? ?
    sorry - I would have used the figures you provided in your comment but I didn't see them when I posted mine - a timing issue :)
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