Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a webpage design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year is shown below: $$\begin{array} { l r }
\text { Sales } & \$ 550,000 \
\text { Direct materials } & 50,000 \
\text { Direct labour } & 300,000 \
\text { Variable overhead } & 5,000 \
\text { Advertising for business } & 5,000 \
\text { Depreciation on equipment } & 30,000 \
\text { Administration } & 27,000 \
\text { Interest } & 10,000 \
\text { Profit before tax } & 133,000
\end{array}$$ Other relevant information: Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below: $$\begin{array} { l r }
\text { Direct materials } & \$ 400 \
\text { Direct labour (100 hours) } & \$ 1,500
\end{array}$$
-Refer to the table above. If the budgeted direct labour hours change to 25,000 hours, what will be the revised quote?
A)$2,128.
B)$2,348.
C)$2,208.
D)$2,368.

Question

Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a webpage design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year is shown below: $$\begin{array} { l r } 
\text { Sales } & \$ 550,000 \
\text { Direct materials } & 50,000 \
\text { Direct labour } & 300,000 \
\text { Variable overhead } & 5,000 \
\text { Advertising for business } & 5,000 \
\text { Depreciation on equipment } & 30,000 \
\text { Administration } & 27,000 \
\text { Interest } & 10,000 \
\text { Profit before tax } & 133,000
\end{array}$$ Other relevant information: Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below: $$\begin{array} { l r } 
\text { Direct materials } & \$ 400 \
\text { Direct labour (100 hours) } & \$ 1,500
\end{array}$$
-Refer to the table above. If the budgeted direct labour hours change to 25,000 hours, what will be the revised quote?
A)$2,128.
B)$2,348.
C)$2,208.
D)$2,368.

Quizplus · Accepted Answer

The revised quote can be calculated by first determining the revised variable overhead rate per direct labour hour, then adding the direct costs and a portion of the fixed costs based on the new budgeted direct labour hours. With the change to 25,000 direct labour hours, the variable overhead rate per hour is calculated as follows: Total Variable Overhead / Total Direct Labour Hours = $5,000 / 25,000 hours = $0.20 per hour. The direct costs given for the job are $400 for materials and $1,500 for labour. The job requires 100 hours of labour, so the variable overhead for this job is 100 hours * $0.20 = $20. The total direct costs (materials + labour + variable overhead) are $400 + $1,500 + $20 = $1,920. To include a portion of the fixed costs (advertising, depreciation, administration, and interest) and profit, we add these to the sales and then divide by the total direct labour hours to find the rate per hour. Fixed costs and profit total $5,000 + $30,000 + $27,000 + $10,000 + $133,000 = $205,000. The sales are $550,000, so the total to be covered is $550,000 + $205,000 = $755,000. The rate per hour is $755,000 / 25,000 hours = $30.20 per hour. For 100 hours, this amounts to 100 hours * $30.20 = $3,020. However, since the direct costs are already included in this calculation, we subtract them to find the additional amount to be quoted: $3,020 - $1,920 = $1,100. Therefore, the revised quote is the direct costs ($1,920) plus the additional amount ($1,100) = $3,020, which is not an option provided, indicating a mistake in the calculation process. The correct approach involves applying the markup based on the original profit margin to the direct costs. Given the error in the explanation, the correct calculation should focus on adjusting the quote based on the provided options and the direct costs. The mistake was in recalculating the entire quote with an incorrect method for applying fixed costs and profit. The correct answer should directly relate to the change in variable overhead and its impact on the direct costs, which was initially miscalculated. The correct answer, considering the options, involves a direct adjustment to the quote based on the provided information and the error in the explanation process. Given the provided options and the initial mistake in calculation, the correct answer should reflect the direct costs and any adjustments based on the new information, which was not accurately captured in the explanation.

Use the Information Below to Answer the Following Questions Other Relevant Information: Management Has Budgeted for 20,000 Direct Labour