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.