# Elements of Costing help!

jbousc
Registered Posts:

**21**
Hello

One of the questions on the practice exam is the below, and i am stuck on how to answer it. The books I'm using sets it out in a totally different way and it suddenly makes no sense to me

HardCast Ltd is looking to calculate the unit cost for one of the products it makes. It needs to calculate an overhead absorption rate to apply to each unit.

per machine hour

per labour hour

per unit

Total factory activity for all production is forecast as follows:

Machine hours = 20,000

Labour hours = 25,000

units = 120,000

Overheads = £300,000

(a) complete the table to show the possible overhead absorption rates.

Machine hour Labour hour unit

overheads £

activity

absorption rate £

The following data relates to making one unit of the product

material - 4kgs at £5 ker kilo

labour - 15 mins at £20 per hour

production time - 12 mins

(b) complete the table below to calculate the total unit cost, using the three overhead absorption rates you have calculated in a

cost machine hour £ labour hour£ unit£

material

labour

direct cost

overheads

total unit cost

One of the questions on the practice exam is the below, and i am stuck on how to answer it. The books I'm using sets it out in a totally different way and it suddenly makes no sense to me

HardCast Ltd is looking to calculate the unit cost for one of the products it makes. It needs to calculate an overhead absorption rate to apply to each unit.

per machine hour

per labour hour

per unit

Total factory activity for all production is forecast as follows:

Machine hours = 20,000

Labour hours = 25,000

units = 120,000

Overheads = £300,000

(a) complete the table to show the possible overhead absorption rates.

Machine hour Labour hour unit

overheads £

activity

absorption rate £

The following data relates to making one unit of the product

material - 4kgs at £5 ker kilo

labour - 15 mins at £20 per hour

production time - 12 mins

(b) complete the table below to calculate the total unit cost, using the three overhead absorption rates you have calculated in a

cost machine hour £ labour hour£ unit£

material

labour

direct cost

overheads

total unit cost

## Comments

212121128Machine hr (where overhead is £300,000 and activity is 20,000 machine hrs)

Absorption rate = £300,000/20,000 machine hrs =

£15.00per machine hrsLabour hr (where overhead is £300,000 and activity is 25,000 labour hrs)

Absorption rate = £300,000/25,000 labour hours =

£12.00per labour hrUnit (where overhead is £300,000 and activity is 120,000 units)

Absorption rate = £300,000/120,000 units =

2.50per unitb) Calculate the standard cost (cost for one unit) from the information given.

Material (4 kg at £5 per kg) one unit uses 4kg and at £5 per kg cost a total of

£20.00per unitLabour (15 mins at £20 phr) one unit uses 15/60 = 0.25hr and at £20 phr cost a total

£5.00per unitDirect cost per unit is these two added together for the three options.

Overhead per unit

Unit method

This is straight forward as the answer is already per unit £2.50 per unit

Total unit cost = £25.00 + £2.50 =

£27.50Labour hr method

Each unit takes 15 mins of labour. Where absorption rate is £12 per labour hr, one unit costs 15/60 x £12 =

£3.00Total unit cost = £25.00 + £3.00 =

£28.00Machine hr method

Each unit takes 12 mins of production time. Where absorption rate is £15 per machine hr, one unit costs 12/60 x £15 =

£3.00Total unit cost = £25.00 + £3.00 =

£28.00Important: show answers to two decimal places. This is easy to overlook and marks will be lost if not followed.21