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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