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MC Question 28
The Hi Life Co (HL Co) makes sofas. It has recently received a request from a customer to provide a one-off order of sofas, in excess of normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared:
A quotation now needs to be prepared on a relevant cost basis so that HL Co can offer as competitive a price as possible for the order.
| $ | ||
|---|---|---|
| Direct materials: | ||
| Fabric | 200 m2 at $17 per m2 | 3,400 |
| Wood | 50 m2 at $8·20 per m2 | 410 |
| Direct labour: | ||
| Skilled | 200 hours at $16 per hour | 3,200 |
| Semi-skilled | 300 hours at $12 per hour | 3,600 |
| Factory overheads | 500 hours at $3 per hour | 1,500 |
| Total production cost | 12,110 | |
| General fixed overheads as 10% of total production cost | 1,211 | |
| Total cost | 13,321 |
Of the $3 per hour factory overheads costs, $1·50 per hour reflects the electricity costs of running the cutting machine which will be used to cut the fabric and wood for the sofas. The other $1·50 per hour reflects the cost of the factory supervisor’s salary. The supervisor is paid an annual salary and is also paid $15 per hour for any overtime he works.
He will need to work 20 hours overtime if this order is accepted.
What is the cost which should be included in the quotation for factory overheads?
A. $1,050
B. $1,800
C. $750
D. $300