Question

Records at Hal’s Accounting Services show the following costs for year 1: Direct materials and supplies $ 47,000 Employee costs 2,900,000 Total overhead 1,300,000 Production was 25,000 billable hours. Fixed overhead was $760,000. Assuming no change in billable hours in year 2, direct materials and supplies costs are expected to increase by 10 percent. Direct labor costs are expected to increase by 15 percent. Variable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 percent. Required: a. Year 2 production is expected to be 20,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2? (Do not round intermediate computations.) b. Determine the total costs per billable hour for year 1 and year 2. (Round your answers to 2 decimal places.)

Answer 1

• All working forms part of the answer
• Working #1: Calculation of figures for Year 2

	Amount for 25,000 billable hours	Amount per billable hours	Increase in Year 2	Costs to be considered for Year 2
Direct Material	$        47,000.00	$                     1.88	10%	$               2.07 per billable hour
Direct Labor	$ 2,900,000.00	$                116.00	15%	$          133.40 per billable hour
Overheads:
Fixed Overheads	$      760,000.00		5%	$ 798,000.00
Variable Overheads [ 1300000 - 760000]	$      540,000.00	$                   21.60		$            21.60 per billable hour
Total Overheads	$ 1,300,000.00
Total Cost	$ 4,247,000.00

• Requirement ‘a’

	Cost per billable hours	No. of billable hours for Year 2	Total Cost [ ANSWER]
Direct material	$                   2.07	20,000	$        41,360.00
Direct Labor	$              133.40	20,000	$ 2,668,000.00
Variable Overheads	$                 21.60	20,000	$      432,000.00
Fixed Overheads			$      798,000.00
Total cost for Year 2			$ 3,939,360.00

• Requirement ‘b’

	Year 1	Year 2
Total cost	$      4,247,000.00 [see working #1]	$ 3,939,360.00
No. of billable hours	25,000	20,000
Total cost per billable hours	$                  169.88	$              196.97