Question
In: Accounting
Design Arts Associates is an interior decorating firm in Berlin. The following costs were incurred in...
Design Arts Associates is an interior decorating firm in Berlin.
The following costs were incurred in the firm’s contract to
redecorate the mayor’s offices.
| Direct material used | 4,000 | euros | |
| Direct professional labor | 6,000 | euros | |
The firm’s budget for the year included the following
estimates:
| Budgeted overhead | 400,000 | euros | |
| Budgeted direct professional labor | 250,000 | euros | |
Overhead is applied to contracts using a predetermined overhead
rate calculated annually. The rate is based on direct professional
labor cost.
Required:
Calculate the total cost of the firm’s contract to redecorate the
mayor’s offices.
Solutions
Expert Solution
Calculation of the total cost of the firm’s contract to redecorate the mayor’s offices:
Pre-determined overhead rate = (Budgeted overhead/Budgeted direct professional labor) *100
Hence rate = (400000/250000)*100 = 160%
| Particulars | Amount (In Euros) |
| Direct Material Used | 4000 |
| Direct professional labor | 6000 |
| Applied Overhead (6000*160%) | 9600 |
| Total | 19600 |
Therefore, total cost of the firm’s contract to redecorate the mayor’s offices 19,600 Euros.
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