Question

Plantwide Overhead Rate, Activity-Based Costing, Job Costs Foto-Fast Copy Shop provides a variety of photocopying and printing services. On June 5, the owner invested in some computer-aided photography equipment that enables customers to reproduce a picture or illustration, input it digitally into the computer, enter text into the computer, and then print out a four-color professional quality brochure. Prior to the purchase of this equipment, Foto-Fast Copy Shop's overhead averaged $29,600 per year. After the installation of the new equipment, the total overhead increased to $111,000 per year. Foto-Fast Copy Shop has always costed jobs on the basis of actual materials and labor plus overhead assigned using a predetermined overhead rate based on direct labor hours. Budgeted direct labor hours for the year are 7,400, and the wage rate is $9 per hour. Required: 1. What was the predetermined overhead rate prior to the purchase of the new equipment? per direct labor hour 2. What was the predetermined overhead rate after the new equipment was purchased? per direct labor hour 3. Suppose Rick Anselm brought in several items he wanted photocopied. The job required 800 sheets of paper at $0.01 each and 39 minutes of direct labor time. What would have been the cost of Rick's job on May 20? On June 20? If required, round your answers to the nearest cent.

Answer 1

1) Earlier Scenario :

Total Overhead Cost =$29,600

Direct Labor Hours = 7400 hours

Overhead Rate =Overhead Cost/ Direct Labor Hours

= 29,600/7,400 = $4

2) Changed Scenario :

Total Overhead Cost =$111,000

Direct Labor Hours = 7400 hours

Overhead Rate = $111,000/7400 = $15

3)   Statement showing the Cost structure in May 20 and Jun 20

Particulars	May-20			Jun-20
	Units	Rate	Total	Units	Rate	Total
Direct Material	800	0.01	8	800	0.01	8
Direct Labor	0.65	9	5.85	0.65	9	5.85
Overhead (Based on D Labor)	0.65	4	2.6	0.65	15	9.75
			16.45			23.6

Note : Direct Labor hours = 39/60 = 0.65 hour

4) Total Overheads = $111,000

Overhead based on Printing area = $81,400

Overhead based on Labor Hours = $111,000 - $81,400 = $29600

Overhead Rate (based on Printing Area) = $81,400/2300 = $35.39 = $35

Overhead Rate (based on Labor Hour) = $29,600/7400 = $4