The Pipe Company manufactures two products, A and B during the first year of its operations. For the purpose of product costing, an overhead rate of application of Rs. 1.70 per direct-labour was used, based on budgeted factory overhead of Rs. 3,40,000 and budgeted direct-labour hours of 2,00,000 as follows:
The number of labour-hours required to manufacture each of these products was:
At the end of the year, there was no work in process. There were, however, 2,000 and 6,000 finished units, respectively, of products A and B on hand. Assume that budgeted activity was attained.
(a) What was the effect on the companys income of using a plant-wise overhead rate instead of departmental overheads rates?
(b) Assume that material and labour costs per unit of Product-A were Rs. 10 and that the selling price was established by adding 40 per cent to cover profit and selling and administrative expenses. What difference in selling price would result from the use of departmental against plant-wise overhead rates?
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