Problem
ABC Ltd makes trailers. It receives a special order to produce 350 trailers for a local retail outlet. The order will take 2,100 kg of material that costs $16.10 per kg and will require 1,400 direct labour hours and 525 machine hours. The following are the expected/budgeted annual costs for ABC Ltd:
Direct labour $327,600
Direct labour hours 25,795
Direct materials $193,200
Indirect costs $98,400
Machine hours 9,840
Required:
1. Calculate the overhead allocation rate: note that the process is labour-intensive
2. Calculate the total costs of the special order
3. Calculate the cost of the special order if ABC Ltd uses machine time as the basis for allocating overheads
4. Calculate the minimum price per trailer that ABC Ltd could accept.
5. Explain how segmented overhead cost pools and activity based costing can assist accurate costing for pricing purpose (200 words).