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9706 · 2.2.1

Costing applications — practice questions

Practice and worked examples for 9706 Costing applications. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A bakery produces a batch (Batch 47) of 600 specialty cakes. The costs incurred were: direct materials $2,400; direct labour 120 hours at a rate of $15 per hour. Production overheads are absorbed at a rate of $8 per direct labour hour. Calculate the total cost of the batch and the cost per cake.

Show solution outline

1. Calculate Direct Labour Cost: Direct Labour = 120 hours × $15/hour = $1,800

2. Calculate Absorbed Production Overheads: Overheads = 120 hours × $8/hour = $960

3. Calculate Total Batch Cost: Total Cost = Direct Materials + Direct Labour + Overheads Total Cost = $2,400 + $1,800 + $960 = $5,160

4. Calculate Cost Per Unit (Cake): Cost per Unit = Total Batch Cost / Number of Units Cost per Unit = $5,160 / 600 cakes = $8.60 per cake

If the bakery wanted to achieve a 25% mark-up on cost, the selling price would be $8.60 × 1.25 = $10.75 per cake.

Worked example 2

PrintPro has been asked to quote for Job #121, which involves printing 500 brochures. The company's annual budgeted production overheads are $120,000, based on 6,000 budgeted direct labour hours. The estimated costs for Job #121 are:

  • Direct Materials: $1,100
  • Direct Labour: 20 hours at $25 per hour PrintPro adds a 40% mark-up on total cost to determine the selling price.

Calculate the quotation price for Job #121.

Show solution outline

Step 1: Calculate the Predetermined Overhead Absorption Rate (OAR) OAR = Budgeted Production Overheads / Budgeted Direct Labour Hours OAR = $120,000 / 6,000 hours = $20 per direct labour hour

Step 2: Calculate the Total Cost for Job #121 We need to find the cost of direct materials, direct labour, and absorbed overheads.

  • Direct Materials: $1,100 (given)
  • Direct Labour: 20 hours × $25/hour = $500
  • Absorbed Overheads: 20 direct labour hours × $20/hour (OAR) = $400

Total Job Cost = $1,100 + $500 + $400 = $2,000

Step 3: Calculate the Quotation Price The company uses a 40% mark-up on cost.

  • Profit Mark-up: 40% of $2,000 = 0.40 × $2,000 = $800
  • Quotation Price: Total Cost + Profit Mark-up
  • Quotation Price: $2,000 + $800 = $2,800

The price quoted to the customer for Job #121 would be $2,800.

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