The question in the attached image a) Hughes Limited manufactures two models of electric motors which are installed oncommercial drones. These are called the Standard and the Super. Budgeted data relating tothese two models for next year are as follows:Annual production overheads have been estimated as £3.3 million for the coming year. Theseare currently absorbed on a machine hour basis. Selling price is set by adding a mark-up of30% of prime cost. Direct labour is paid at a rate of £18 per hour.Standard25,000SuperProduction and sales volumes (units)Direct material cost per unit (£)Direct labour time per unit (hours)15,000851050.751.253.0Machine hours per unitPurchase orders issuedNumber of supplier deliveries5.01004003801,140Required:Based on the current method of absorbing production overheads, calculate for the Standardand the Super:(1)The full absorption cost per unit;(i)The selling price per unit; and(ii)The unit profit.

1. Direct Material Cost = Units * D.M Cost per unit Standard = 25,000 x 85 = 2,125,000 Super=…

Answered: Hughes Limited manufactures two models…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter13: Lean Manufacturing And Activity Analysis

Section: Chapter Questions

Problem 3BE

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The question in the attached image

a) Hughes Limited manufactures two models of electric motors which are installed on
commercial drones. These are called the Standard and the Super. Budgeted data relating to
these two models for next year are as follows:
Annual production overheads have been estimated as £3.3 million for the coming year. These
are currently absorbed on a machine hour basis. Selling price is set by adding a mark-up of
30% of prime cost. Direct labour is paid at a rate of £18 per hour.
Standard
25,000
Super
Production and sales volumes (units)
Direct material cost per unit (£)
Direct labour time per unit (hours)
15,000
85
105
0.75
1.25
3.0
Machine hours per unit
Purchase orders issued
Number of supplier deliveries
5.0
100
400
380
1,140
Required:
Based on the current method of absorbing production overheads, calculate for the Standard
and the Super:
(1)
The full absorption cost per unit;
(i)
The selling price per unit; and
(ii)
The unit profit.

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b) Managers at Hughes Limited have become concerned about declining profits although market demand for its electric motors has been buoyant. As a result, they have become interested in applying an activity-based costing (ABC) approach to product costing. A firm of consultants has recently completed a workplace study and has been able to allocate the total annual budgeted production overheads across three key activities. This is shown below.

	£
Purchasing	1,000,000
Processing	1,350,000
Materials handling	950,000
	3,300,000

In addition, the identified cost driver for each of the three activities is as follows:

Activity	Cost driver
Purchasing	Purchase orders issued
Processing	Machine hours
Materials handling	Number of supplier deliveries

Required:

Based on ABC principles, calculate the selling prices for the Standard and the Super. You should assume that there is no change to the cost-plus pricing policy employed by Hughes Limited.

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