Use the Information Below to Answer the Following Questions

question 7

Multiple Choice

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 web-page 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 are shown below: 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:
Direct materials $400
Direct labour (100 hours) $1,500
-Refer to the table above. The budgeted overhead recovery rate based on direct labour hours (DLHs) is:

• A) $2.85 per DLH.
• B) $5.85 per DLH.
• C) $5.60 per DLH.
• D) $3.85 per DLH.

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Definitions:

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Income Statement

A financial statement showing the revenue, expenses, and profit or loss of a company over a specific period.

Equivalent Units

A measure used in cost accounting to express the amount of work done on partially finished goods in terms of fully completed units.

Direct Materials

Raw materials that are consumed in the manufacturing process, directly incorporated into the finished product.