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Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist...

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm's direct labor includes salaries of consultants that work at the client's job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients. Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 80,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $680,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm's actual overhead cost for the year was $692,000 and its actual total direct labor was 83,000 hours.

1. The estimated total overhead cost is computed as follows:

Estimated fixed overhead cost.................................

Estimated variable overhead cost: $0.50 per DLH × 80,000 DLHs.........................................................

Estimated total overhead cost..................................

$720,000

The predetermined overhead rate is computed as follows:

Estimated total overhead (a).......................

Estimated total direct labor-hours (b)..........

Predetermined overhead rate (a) ÷ (b).......

2. Total manufacturing cost assigned to Xavier:

Direct materials..........................................................

Direct labor................................................................

Overhead applied ($9.00 per DLH × 280 DLHs).........

Total manufacturing cost............................................

$61,520

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Answer #1
1. The estimated total overhead cost is computed as follows:
Estimated fixed overhead cost                                                                              $680,000
Estimated variable overhead cost       ($0.50 per DLH × 80,000 DLHs)             $40,000
Estimated total overhead cost               ($680,000 + $40,000) $720,000
The predetermined overhead rate is computed as follows:
Estimated total overhead    (Calculated above)       (a) $720,000
Estimated total direct labor-hours                            (b) 80000
Predetermined overhead rate                                   (a) ÷ (b) $9
2. Total manufacturing cost assigned to Xavier:
Direct materials $38,000
Direct labor $21,000
Overhead applied   (Calculated above)        ($9.00 per DLH × 280 DLHs) $2,520
Total manufacturing cost                                [$38,000 + $21,000 + $2,250]   $61,520
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