Question: Pieman Products Ltd makes road trailers to the precise specifications of individual customers. The following are predicted to occur during the forthcoming year, which is about to start:
Direct materials cost £50,000
Direct labour cost £160,000
Direct labour time 16,000 hours
Indirect labour cost £25,000
Depreciation of machine £8,000
Rent and rates £10,000
Heating, lighting and power £5,000
Indirect materials £2,000
Other indirect costs £1,000
Machine time 3,000 hours
All direct labour is paid at the same hourly rate. A customer has asked the business to build a trailer for transporting a racing motorcycle to races. It is estimated that this will require materials and components that will cost £1,150. It will take 250 direct labour hours to do the job, of which 50 will involve the use of machinery.
Required: Deduce a logical cost for the job, and explain the basis of dealing with overheads that you propose.