Barker Dean Limited manufactures parts for yachts. Last year it
set up a separate division to sell a particular product (winches)
and the budgeted sales for the next year are 1,500 winches with a
budgeted selling price of $2,500 per winch. Details of the
materials and labour to make a winch are as follows:

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Quantity to make one winch

Costs

Material A

4 kg

Beginning inventory is 3,000 kg at a book value of $37 per kg.
This material is used continuously and its current replacement
price is $40

Material B

1 kg

There is inventory available of 1,500kg which originally cost
$52 per kg. The material had not been used for two years so it has
been written down to a disposal value of $40 per kg. It could be
used as a substitute for another material C which is used elsewhere
in Barker Dean Ltd but it would require further processing costs of
$20 and C currently costs per kg. If B is used there is
sufficient inventory for 1,500 winches after which they will use
another material D whose current cost is $58 per kg.

Direct labour hours

4 hours

$40 per hour

Direct machine hours

2 hours

$50 per hour

Total overhead costs for the winch division are budgeted to be
$2,306,700 for the next twelve months and Barker Dean Ltd use
direct labour hours to allocate overhead.

a. Required:

 Calculate the direct costs per winch. Barker Dean uses
relevant costing for materials. Explain your choice of costs for
materials.

 Calculate the predetermined overhead recovery rate and the
amount applied to one winch.

 Calculate the total cost per winch.

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