Answer Happy

Required:

a. Prepare a predetermined overhead absorption rates for production

overhead based upon the three different bases of absorption

mentioned above.
b. Outline the reasons for calculating the pre-determined overhead

absorption rate.
c. Select the overhead absorption rate that you think Irongate should

use. State your reasons.
d. Irongate has been asked to price for job A, this job require
Direct material £3,788

Direct labour £1,100

Direct expenses £422

Machine hours 120

Labour hours 22
e. Compute the selling price for this job using the absorption rates

selected in part (c) above, given that the company’s profit margin is

equal to 10% of the selling price.
QUESTION 4 (20 MARKS) Irongate Pte Ltd. is a UK corporation that develops and produces components and systems for the automotive industry. The company manufactures automotive parts for various Original Equipment Manufacturer (OEMs). The company has prepared the following budgeted information for the year: £ Direct material 800,000 Direct labour 200,000 Direct expenses 40,000 Production overhead 600,000 Administrative overhead 328,000 Budgeted activity levels include: units Budgeted production 600,000 Machine hours 50,000 Labour hours 40,000 It has recently spent heavily upon advanced technological machinery and reduced its workforce. As a consequence, the company is thinking about changing its basis for overhead absorption from a percentage of direct labour costs to either a machine hour or labour hour basis. The administrative overhead is to be absorbed as a percentage of factory cost. a