(a) Lockdown Ltd manufactures three products (X, Y and Z) in two departments; machine shop and fitting section: It also has two service departments; canteen and machine maintenance section.
Next year’s budgeted production data and manufacturing costs for the company are shown below:
| Product | Product | Product | |
| X | Y | Z | |
| Production
Prime cost per unit: |
4,200 units | 6,900 units | 1,700 units |
| Direct materials
Direct labour: |
K220 | K280 | K340 |
| Machine shop | K120 | K80 | K40 |
| Fitting section | K240 | K60 | K420 |
| Machine hours per unit
|
6 hours | 3 hours | 4 hours |
|
Machine Fitting shop sectionCanteen |
Maintenance
section Total |
||
Allocated overheads (K) 553,200 389,400332,000 533,000 1,807,600
Rent, rates, heat and light 340,000 Equipment insurance 500,000
Additional data:
Equipment book value (K) 3,000,000 1,500,000 600,000 900,000
Number of employees 18 14 4 4
Floor space (square metres) 3,600 1,400 1,000 800
It has been estimated that approximately 70% of the machine maintenance section’s costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.
Lockdown Ltd recovers production overheads using a plant wide absorption rate per machine hour and adds 20% profit margin to unit cost to establish the selling price per unit.
You are required to:
(i) Prepare an overhead analysis statement
(ii) Calculate a machine hour plant wide overhead absorption rate
(iii) Determine the production cost per unit for each of the three products
(iv) Compute appropriate selling price per unit for each product.
