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Sam Company Ltd. produces a range of products and absorbs production overhead us

游客2025-06-21  18
问题 Sam Company Ltd. produces a range of products and absorbs production overhead using a rate of 168% on direct wages. The absorption rate was calculated from following budgeted figures:
＄
Direct wages 100,000
Fixed production overhead 90,000
Variable production overhead 78,000
Sam is making component W, which is an essential part of product M. The cost of making component W is as follows:
＄
Raw material 10
Direct wages 8
Production overhead 18
36
It is found that component W could be bought from an outside supplier at ＄21. It is unlikely to reduce any production costs even if component W is acquired from outside.
Required:
(a)Determine the overhead absorption rate.
(b)Advise whether the company should continue making component W or buy it from outside.
选项
答案 (a)The overhead absorption rates are determined as follows:
Variable overhead rate = Variable production costs / Direct labour costs
= 78,000 / 100,000
= 78%
Fixed rate overhead = Fixed production costs / Direct labour costs
= 90,000 / 100,000
= 90%
Total rate = 78% + 90% = 168%
(b)Marginal cost for unit of component W:
＄
Raw material 10
Direct labour 8
Variable overhead (＄8×78%) 6.24
24.24
The outside supplier’s quotation of ＄21 is lower as compared with the variable cost of making component W. Thus, buying component W from outside would save ＄3.24 per unit and is recommended.
解析
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