# the process of restructuring its operations

Required:

Based on the above costs what should the Flying Airlines do?

Question 2

Part A: Classifying costs

A manufacturer has the following cost estimates in their annual budget:

Required: (Show total cost for each cost category)

a) Identify budgeted PERIOD COSTS

b) Identify budgeted PRIME COSTS

c) Identify budgeted CONVERSION COSTS

d) Identify budgeted TOTAL PRODUCT COSTS

Part B: Calculating Predetermined Overhead Rate (POHR)

Using the formula for each of the following potential cost drivers, calculate a PREDETERMINED OVERHEAD RATE to APPLY

(i) The manufacturer estimates average direct labour cost per hour to be \$30.00 per hour. (/DLH)

(ii) The manufacturer decides to allocate overheads based on Direct Labour COST. (/DL\$)

(iii) The manufacturer estimates there will be 130,000 machine hours worked this year. (/MH)

(iv) The manufacturer decides to allocate overheads based on Direct Material COST. (/DM\$)

Part C: “Normalising” Manufacturing Costs using a Predetermined Overhead Rate (POHR)

Using the POHR rates calculated above, calculate the APPLIED OVERHEAD if the following ACTUAL COST DRIVER ACTIVITY LEVELS occurred:

(i) Actual Direct labour hours were 11,500

(ii) Actual Machine Hours were 125,000

Part D: Dealing with OVER or UNDER APPLIED OVERHEADS

For each of the APPLIED OVERHEAD amounts calculated in Part C, if the ACTUAL Overheads were as follows, calculate the difference to the budgeted overhead and indicate whether the overheads were OVER or UNDER APPLIED: