Question

In: Accounting

peedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts...

peedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room.

The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates:

Direct labor-hours required to support estimated output 28,000
Fixed overhead cost $ 364,000
Variable overhead cost per direct labor-hour $ 1.00

Required:

1. Compute the predetermined overhead rate.

2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job:

Direct materials $ 777
Direct labor cost $ 215
Direct labor-hours used 2

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 30% of its total job cost, then how much would it have charged Mr. Wilkes?

Solutions

Expert Solution

Solution:

1. The estimated total overhead cost is computed as follows

Y = $364,000 + ($1.00 per DLH) (28,000 DLHs)

Estimated fixed overhead = $ 364,000

Estimated variable overhead = $1.00 per DLH 28,000 DLHs = $28,000

Estimated Total overhead = $392,000.

The predetermined overhead rate is computed as follows

Estimated Total overhead = $392,000.

Estimated Total direct labor-hours = 28,000 DLHs

Predetermined overhead rate = $392,000 28,000 = $14.00 per DLH

Predetermined overhead rate = $14.00 per DLH

2. Calculation of total job cost

Total job cost = Direct material + Direct labor + over head applied

Total job cost = $777 + $215 + (2 DLHs $14.00 per DLH)

Total job cost or Manufacturing cost = $1,020.

3. The price charged to Mr. Wilkes is computed as follows

Total manufacturing cost = $1,020

Markup (30%) = $1,020 30% = $306

Therefore, Selling price = $1,020 + $306 = $1,326.


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