Question

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 55,000 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $302,500 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 $321,300 and its actual total direct labor was 58,850 hours.

Required:

1. Compute the predetermined overhead rate.

2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job:

Direct materials	$	50,850
Direct labor cost	$	27,300
Direct labor-hours worked		220

Compute the total job cost for the Xavier Company engagement.

Q)Compute the predetermined overhead rate

Answer 1

1.

Variable overhead cost per direct labor-hour = $0.50

Fixed overhead cost = $302,500

Estimated direct labor hours = 55,000

Predetermined overhead rate = Variable overhead cost per direct labor-hour + Fixed overhead cost/Estimated direct labor hours

= 0.50 + 302,500/55,000

= 0.50 + 5.50

= $6 per direct labor hour

2.

Overhead applied = Actual direct labor hours used x  Predetermined overhead rate

= 220 x 6

= $1,320

Job cost sheet (Xavier Company)

Direct material	50,850
Direct labor	27,300
Overhead applied	1,320
Total cost assigned to Xavier Company	$79,470

Total cost assigned to Xavier Company = $79,470