In: Accounting
$$ \begin{array}{ll} \text { Direct materials } & \$ 38,000 \\ \text { Direct labor cost } & \$ 21,000 \\ \text { Direct labor hours worked } & 280 \\ \hline \end{array} $$
Job cost sheet: The job cost sheet records direct materials cost, direct labor cost, and manufacturing overheads. It shows the total cost of the job work and completion details.
Variable overhead costs: These costs are directly proportional to the level of activity. If there is a change in the activity level by 10%, then there would be a change in the variable cost by 10% in either direction. Variable cost is directly proportional to the volume of the production. Variable cost per unit remains constant.
Fixed overheads costs: These costs do not vary with changes in the level of activity. Fixed cost remains the same for the period. If there is an increase in the activity level, then the fixed cost per unit decreases, and if there is a decrease in the activity level, then the fixed cost per unit increases. Fixed cost per unit changes with the change in the activity level.
Pre-determined overhead rate: It is the rate that is calculated based on the activity base. This rate is used to allocate manufacturing overheads.
Calculate the predetermined overhead rate as follows:
Overheadrate=Expectedannualoverheadcost÷Expectedannualoperatingactivity{\rm{Overhead}}\,{\rm{rate}}\,{\rm{ = }}\,{\rm{Expected}}\,{\rm{annual}}\,{\rm{overhead}}\,{\rm{cost}}\, \div \,{\rm{Expected annual}}\,{\rm{operating}}\,\,{\rm{activity}}
Total job cost is calculated by adding the all cost incurred for the completion of the job i.e. direct materials cost, direct labor cost, and overheads cost.
1.
The variable overhead rate is $0.50 per direct labor hour, the total estimated fixed overhead is $680,000, and the estimated direct labor hour is 80,000.
Determine the predetermined overhead rate as follows: -
PredeterminedOverheadrate=VariableOverheadRate+FixedOverheadRate=$0.50+($680,000÷80,000)=$9.00PredeterminedOverheadrate=VariableOverheadRate+FixedOverheadRate=$0.50+($680,000÷80,000)=$9.00
Therefore, the predetermined overhead rate is $9 per direct labor hour.
2.
The variable overhead rate is $0.50 per direct labor hour, the total actual fixed overhead is $692,000, and the estimated direct labor hour is 83,000.
Determine the total job cost as follows: -
TotalJobCost=DirectMaterials+DirectLabor+OverheadCost=$38,000+$21,000+($9×280)=$61,520TotalJobCost=DirectMaterials+DirectLabor+OverheadCost=$38,000+$21,000+($9×280)=$61,520
Therefore, the total job cost is $61,520.
Part 1
The predetermined overhead rate is $9 per direct labor hour.
Part 2
The total job cost is $61,520.