Star Electronics Ltd calculates its predetermined overhead rate on a quarterly basis. The following estimates were made for next year:
The firm main product, part number A200, requires $200 of direct material and 20 hours of direct labour per unit. The labour rate is $30 per hour.
Required:
1. Construct an Excel’ spreadsheet to:
(a) Calculate the firm’s quarterly predetermined overhead rate for each quarter of next year
(b) Determine the cost of one unit of part number A200 if it is manufactured in:
(i) January.
(ii) April.
2. Suppose the company’s pricing policy calls for a 10 per cent markup on cost. Use your spreadsheet to calculate the price to be charged for a unit of part number A200 if it is produced in:
(a) January.
(b) April.
3. Use your spreadsheet to calculate the company’s predetermined overhead rate for next year rate is calculated annually.
4. Based on your answer to requirement 3 what is the cost of a unit of part number A200 if it is manufactured in:
(a) January?
(b) April?
5. What is the price of a unit of part number A200 if the predetermined overhead rate is calculated annually?
6. Which approach would you recommend to management-quarterly overhead rates or an annual rate? Explain your answer.
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