Problem
Pieman Products Ltd. makes road trailers to the precise specifications of its individual customers. The following data is projected for the coming year for use in managerial decision making:
Direct labour cost £160,000
Direct labour time 16,000 hours
Overhead costs (rent, indirect labour, power, etc) £25,000
Machine depreciation £8,000
Machine time 3,000 hours
All direct labour is paid at the same hourly rate. A customer has requested a trailer to transport racing motorcycles. Direct materials and components to build the trailer will cost £1,150. It will take 250 direct labour hours and 50 machine hours to build the trailer.
a. Calculate the direct labour cost of building the trailer.
b. Calculate the direct machine cost of building the trailer.
c. Allocate overhead costs based on direct labour time, and calculate the overhead expense to be allocated to building the trailer.
d. What is the full cost of building the trailer?