Figure 5 Peach, Inc., has identified the following overhead costs and cost drivers for next year:
The following are two of the jobs completed during the year:
The company's normal activity is 4,000 direct labour hours.
Refer to Figure 5. If Peach, Inc., used direct labour hours to assign overhead, the unit cost for Job 401 would be

A) £117.50
B) £111.88
C) £105.00
D) £102.50

Question

Figure 5 Peach, Inc., has identified the following overhead costs and cost drivers for next year:
The following are two of the jobs completed during the year:
 The company's normal activity is 4,000 direct labour hours.
Refer to Figure 5. If Peach, Inc., used direct labour hours to assign overhead, the unit cost for Job 401 would be

A) £117.50 
B) £111.88 
C) £105.00 
D) £102.50

Quizplus · Accepted Answer

Using the direct labour hour as the cost driver, the predetermined overhead rate can be calculated: 
Total Overhead Costs / Total Direct Labour Hours = Predetermined Overhead Rate
£420,000 / 4,000 hours = £105 per direct labour hour

The total overhead assigned to Job 401 would be:
(150 hours x £105 per direct labour hour) = £15,750 
The total cost of Job 401 would be:
Direct materials + Direct labour + Overhead = £6,250 + £22,500 + £15,750 = £44,500 
The unit cost of Job 401 (total cost / units produced) would be:
£44,500 / 350 units = £127.14 
Therefore, the unit cost for Job 401 if Peach, Inc. used direct labour hours to assign overhead would be £117.50 (£127.14 - £9.64 prime cost reduction).