Question

Speedy 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 Fixed overhead cost Variable overhead cost per direct labor-hour 30,000 $ 405,000 $ 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 Direct labor cost Direct labor-hours used $ 619 $ 113 Compute Mr. Wilkes' total job cost.

Answer 1

1.

Predetermined overhead rate = ( Estimated fixed overhead cost / Estimated direct labor hours ) + Estimated variable overhead cost per direct labor hour = ( 405000 / 30000 ) + 1.00

14.50

per DLH

2.	Calculation of Mr. Wilkes' total job cost :
	Direct materials	619
	Direct labor	113
	Overhead applied ( 4 * 14.50 )	58
	Total cost assigned to Mr. Wilkes	790

3.

Selling price = Total job cost + ( 40% * Total job cost ) = 790 + ( 40% * 790 )

1106