Question

Apple produces widgets and bills customers following a time and materials approach. Apple reports the following budgeted information for 2016:

Direct materials:

Direct materials used:                             $250,000

Direct materials overhead                      $40,000

Direct materials profit                            15%

Labor:

Direct labor                                             $450,000

Direct labor overhead                             $110,000

Direct labor hours                                   20,000 hours

Direct labor profit:                                  $7.00 per hour

On January 1, 2016, a customer requests an estimate from Apple on a job. Apple makes the following assumptions regarding the job:

Direct labor hours:                      200

Direct materials used:                 $7,000

Using the information above, calculate the predetermined direct labor rate and materials loading charge for Apple. Then, determine the amount that Apple would charge this customer for the job on January 1.

Answer 1

	$
Direct Labor	450,000
Direct Labor Overhead	110,000
Total labor	560,000
Labor Hours (Hours)	20,000
Labor Rate per hour ( $ )	28
Add: direct labor profit ($ )	7
Per hour labor to be charges ( $ 28 + $ 7 )	35
Direct Material Overhead rate ( $ 40,000 / $ 250,000)	0.16
Total Direct Material Overhead for the Job ( 7,000 x 0.16)	1,120
Add: Direct Material Used	7,000
sub-total	8,120
Add: Direct Material Profit ( $ 8,120 x 15% )	1,218
Total Materials loading charges	9,338
Material Loading Charges	9,338
Labor Charges ( 200 hours x $ 35 per hour )	7,000
Total charges to the customer for the Job	16,338