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 material costs £50,000
- Dirct labour cost £160,000
- Indirect labour cost 16,000 hours
- Depreciation of machine £25,000
- Rent and rates £8,000
- Heating, lighting and power £10,000
- Machine time £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.