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In: Accounting

Activity Driver Driver Frequency Cost of Activity Direct Labor Direct Labor Hours                   50,000 $ 1,250,000.00...

Activity Driver Driver Frequency Cost of Activity
Direct Labor Direct Labor Hours                   50,000 $ 1,250,000.00
Vacuuming Machine Hours                      2,000 $       62,000.00
Set-up Job                      5,000 $     200,000.00
Testing Tests made                      5,000 $       60,000.00
Customer service Orders taken                      1,200 $       30,000.00
Invoicing Invoices mailed                      2,400 $       48,000.00
Total $ 1,650,000.00
Activity Pool Opening Pump Repair Pool Cleaning
Materials 350 1000 50
Direct Labor Hours 15 40 2
Vacuuming 3 0 2
Set-up 1 1 1
Testing 3 0 2
Orders taken 1 1 1
Invoices 2 2 1

Add 35% profit onto every job.
a.       Calculate the current overhead rate per direct labor hour
b.       Calculate the cost of each of the jobs using direct labor hour as the rate
c.       Calculate the price charged for the job
d.       Calculate the ABC charging rates.
e.       Recalculate the costs for each job using these new rates.
f.        Once again calculate the price Tom would charge for each of these jobs.
g.       What does a comparison of the results suggest? Be specific.

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Expert Solution

Answer:
Requirement a Calculate the current overhead rate per direct labor hour
Current overhead rate per direct labor hour =Total overhead cost/Total direct labor hours
=$1650,000/50,000
$                           33.00
Requirement b The cost of each of the jobs using direct labor hour as the rate would be as follows:
Particulars Pool Opening Pump Repair Pool Cleaning
Direct material $                              350 $                      1,000 $                  50
Direct Labor $                              375 ($25*15) $                      1,000 ($25*40) $                  50 ($25*2)
Overhead cost $                              495 ($33*15) $                      1,320 ($33*40) $                  66 ($33*2)
Total cost $                           1,220 $                      3,320 $                166
Add: Mark-up 35% 427 (1220*35%) 1162 (3320*35%) 58.1 (166*35%)
Requirement c The price of each product would be as follows:
Particulars Pool Opening Pump Repair Pool Cleaning
Total cost $                           1,220 $                      3,320 $                166
Add: Mark-up 35% 427 (1220*35%) 1162 (3320*35%) 58.1 (166*35%)
Selling Price $                           1,647 ($1220+427) $                      4,482 (3320+1162) $                224 (166+58.1)
Requirement d The ABC charging rates would be as follows:
Activity Driver Driver Frequency Cost of Activity Cost per activity
Direct Labor Direct Labor Hours                   50,000 $ 1,250,000.00 $                       25 ($1250000/50000)
Vacuuming Machine Hours                      2,000 $       62,000.00 $                       31 ($62000/2000)
Set-up Job                      5,000 $     200,000.00 $                       40 ($200000/5000)
Testing Tests made                      5,000 $       60,000.00 $                       12 ($60000/5000)
Customer service Orders taken                      1,200 $       30,000.00 $                       25 ($30000/1200)
Invoicing Invoices mailed                      2,400 $       48,000.00 $                       20 ($48000/2400)
Total $ 1,650,000.00

ekkarill92 answered 2 years ago
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