Question

ADCITED is a business that specialises in making signs for their customers. Each sign is different, so ADCITED uses a job costing system. ADCITED uses predetermined overhead recovery rates to apply overheads (indirect costs) to jobs. ADCITED segments overheads into ‘general’ overheads, which are applied on a direct labour hours basis, and ‘machine-related’ overheads, which are applied on a machine-hours basis. ADCITED uses cost-plus pricing, with 30% mark-up applied to the full cost of each job. The following annual figures are budgeted for ADCITED: General overheads $68,400 Machine-related overheads $36,000 Direct labour costs $114,000 Direct labour hours 3,800 Machine hours 1,200 A customer asks ADCITED to quote a job for them, to make all the signs for their new store. ADCITED estimates the following for the quote: Direct materials used $9,400 Direct labour hours used 20 Machine hours used 6 (10 marks total) (a) Calculate the overhead recovery rates for ADCITED. Show your workings. (b) Calculate the full cost of the job being quoted. Show your workings. (c) What price should ADCITED quote to their customer for the job? Give your answer to the nearest whole dollar (0 d.p.)

Answer 1

a)

	Estimated overhead	/	Estimated activity driver	=	Overhead rate
General overhead	68400		3800		$ 18 per DLH
Machine related	36000		1200		$ 30 Per MH

B

		Cost of Job
Direct material		9400
Direct labor (20*30)		600
overhead applied
General overhead (20*18)	360
Machine related (6*30)	180
Total overhead applied		540
Total full cost of Job		10540

#Direct labor rate per hour =Total direct labor cost /total direct labor hours

                 = 114000 /3800

                  = $30 per DLH

c)Price =Full cost (1+% markup)

          = 10540 (1+.30)

         = 10540 *1.3

         = $ 13702