1. Somerset Ltd manufactures components for the motor industry.
In one of its workshops it has three workers, Joe, Jack and Jonny, who at any one time work on batches of the same component. The standard time allowed to produce one unit is one hour.
The workers rate of pay is £10 per hour. They work a 38 hour week, any additional hours receiving a premium of 50%. Each period is 4 weeks.
The workers share equally in a bonus scheme which rewards them for efficient production. Time saved during a period is paid at a rate of 80% of the normal rate of pay. The calculation for the bonus is the difference between expected production time for actual output and actual production time for actual output.
During the most recent period the hours worked were:
Joe 165
Jack 165
Mo 170
Production in the period was 560 units.
Produce a statement for the period showing the actual labour cost for the period. Show basic pay, overtime premium, and bonus earned by each worker and in total.
How should the overtime premium be treated in the cost accounts?
2. Somerset Ltd is reviewing the method it uses for valuing its material issues and stock. Identify three popular methods it might employ and, assuming there are rising price levels, explain how each deals with valuing issues of materials and stock. Describe the characteristics of each method.
3. Somerset Ltd estimated the following indirect costs for the year.
£
Indirect wages 300,000
Repairs and maintenance 16,000
Rent and rates 20,000
Depreciation of machinery 40,000
Electricity - power 30,000
Sundries 38,150
444,150
The following information relates to the company's two production and two service departments for the year.
|
|
Production Departments
|
Service Departments
|
|
|
Machinery
|
Finishing
|
Maintenance
|
Canteen
|
|
Machine cost (£)
|
300,000
|
100,000
|
-
|
-
|
|
Machine hours
|
15,000
|
1,000
|
-
|
-
|
|
Power usage (%)
|
80%
|
20%
|
-
|
-
|
|
Floor area (sq. metres.)
|
1,500
|
400
|
50
|
50
|
|
Number of employees
|
17
|
8
|
3
|
2
|
|
Sundries (£)
|
19,600
|
17,350
|
1,200
|
-
|
|
Direct labour hours
|
4,000
|
17,250
|
|
|
|
|
|
|
|
|
|
The proportion of work done by the service departments
|
|
|
Machinery
|
Finishing
|
Maintenance
|
Canteen
|
|
Maintenance (%)
|
60
|
40
|
-
|
-
|
|
Canteen (%)
|
60
|
30
|
10
|
-
|
Calculate an appropriate overhead absorption rate for each production department stating and using suitable bases for apportioning the factory indirect costs.
4. Actual figures for the period are as follows:
Machinery Finishing
Indirect costs (£) 310,000 137,500
Direct labour hours 4,200 16,800
Machine hours 16,080 1,100
(a) Calculate the under/over absorption of overheads for each production department for the period.
(b) Explain how an unsatisfactory method of overhead absorption can adversely affect the profits of a business.
5. Somerset Ltd has been asked to quote for a job. It aims to make a net profit of 40% on the sales price. The estimated costs for the job are as follows:
Direct materials £400
Direct labour 15 hours at £10 per hour
Production overheads
To be recovered using the rates calculated in Question 3.
Machining Department 30 Machine hours
Finishing Department 15 Direct labour hours
Other costs in relation to selling, distribution and administration are recovered at a rate of £200 per job.
Calculate the quote for the job.