Traditional Product Costing Sample 1


Traditional Product Costing

Sample Answer

© 2016

© 2016.

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The bluechip Engineering Company Ltd. is divided into three departments. All engineering work is carried out according to customer’s order. The budgeted costs for 2016 were as follows:

Dept 1 Dept 2 Dept 3 Total

Direct materials €360,000

Direct labour €100,000 € 80,000 €140,000 €320,000

Manufacturing overheads €120,000 €120,000 € 80,000 €320,000

It was anticipated that machine hours worked would be 20,000 in Department 1, 16,000 in Department 2 and 4,000 in Department 3.

During 2015, manufacturing overheads were applied to jobs processed on the basis of direct labour costs, using a pre-determined rate calculated on a factory-wide basis.

The company is now considering switching to individual departmental rates, using machine hours as the basis in Departments 1 and 2 and labour costs as the basis in Department 3.

The actual material and labour costs of producing a particular order (job number 321) during 2014 were as follows:

Direct materials €3,800

Direct labour Dept. 1 €1,500

Dept. 2 1,000

Dept. 3 1,400


The job requires 220 machine hours in Department 1, 160 in Department 2 and 50 in Department 3. During 2016, total direct labour costs were €305,000 and manufacturing overheads were €336,000.

You are required to:

  1. calculate the total manufacturing cost of job number 321, using th...

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