CFOS/Overheads/Exercise 4.1 - Sample Answers
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The direct labour costs of the two products are calculated as follows:
| Kettle | 1/2 direct labour hour × £30 per hour × 1,000 units = | £15,000 |
| Toaster | 1/3 direct labour hour × £30 per hour × 1,000 units = | £10,000 |
| Total Direct Labour Costs: | £15,000 + £10,000 = | £25,000 |
Apportioning the costs of inspection is calculated as follows:
- (Total Cost of Inspection × Direct Labour Costs for each Product)
- divided by (Total Direct Labour Costs for all Products)
The unit cost of inspection for each product is calculated as follows:
- Total Inspection Cost for Product X
- divided by the Number of Units of Product X produced
| Kettle – Total Inspection Cost: | £750 × £15,000/£25,000 = | £ 450.00 |
| Kettle – Inspection Cost per Unit: | £450 ÷ 1,000 units = | £ 0.45 |
| Toaster – Total Inspection Cost: | £750 × £10,000/£25,000 = | £ 300.00 |
| Toaster – Inspection Cost per Unit: | £300.00 ÷ 1,000 units = | £ 0.30 |
This means that 45 pence will need to be added to the production costs of each kettle and 30 pence to the production costs of each toaster when calculating their selling price.
