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 12,000 $ 114,000 $ 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 $ 626 $ 292 4 Compute Mr. Wilkes' total job cost. 3. If Speedy establishes its selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?

Answer 1

Ans. 1	Predetermined overhead rate = Total Estimated overhead cost / Estimated labor hours
		$126,000 / 12,000
		$10.50	per direct labor hour
	*Calculations:
	*Variable manufacturing overhead = Variable overhead cost per labor hour * Direct labor hours required
		$1 * 12,000
		$12,000
	*Total estimated overhead cost = Variable manufacturing overhead + Fixed manufacturing overhead
		$12,000 + $114,000
		$126,000
Ans. 2	Particulars	Amount
	Direct materials	$626.00
	Direct labor cost	$292.00
	Overhead applied	$42.00
	Total cost assigned to Mr. Wilkes	$960.00
	*Calculations:
	Overhead cost applied = Predetermined overhead rate * Actual direct labor hours
		$10.50 * 4
		$42
Ans. 3	Particulars	Amount
	Total manufacturing cost	$960
	Add: Markup ($960 * 40%)	$384
	Amount charged to Mr. Wilkes	$1,344.00