I have a company, it is currently working at 130% capacity utilising rented premises which in themselves incur added costs, costs such as lighting and heating (£600) and insurance (£300). There are other costs including a few variable linear costs but for brevity sake I'll leave them out. There is also a second company who is willing to act as an additional 20% of capacity.
I have to calculate the cost of the additional work to said secondary company via: absorption costing and marginal costing. (Its probably relevant that salary for anything over 100% is time and a third which equates to 75000)
So, do I simply (for marginal costing) add up all the costs that would be associated with working on the product in question? As there is no way to find out direct labour hours what do I do? Divide it by 10%? In the way of contribution sales the only figure I have is debtors and cash which totals out evenly at 60,000 - FOR LAST YEAR.
Do I add all said marginal costs and minus said figure from the contribution sales, but how do I allow for the 10% of capacity that the secondary company provides?
Or have I got this all wrong?
For absorption costing I'm almost totally lost. As I'm looking to find the direct materials cost for the additional 10% for another company to provide I'm assuming I use the formula of: Absorption rate= total cost centre overheads/cost centre direct material costs... WHAT?? Arent they the same thing?
I could probably use the direct labour costs one too which is: adsorption rate= total cost centre overheads/total cost centre direct labour costs.
Urghghg this has been driving me insane. Help would be greatly appreciated.
I'm sorry that there is so much this time rather than the previous simple question.
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