Question

Question 2:

Ready Brakes specializes in brake repair in automobiles. The company applies overhead costs to jobs on the basis of direct labour hours. For the current year, total manufacturing overhead was expected to cost $50,000. The total expected direct labour hours were anticipated to be 8,000. The company was working on job #842, a brake pad replacement on a Volkswagen Golf.

The following costs were incurred:

New Brake Pads:           $8

Labour:                         40 minutes of employee time – wage rate of $9 per hour.

Required:

1. Determine the cost of the job.
2. Assuming the company charges a flat rate of $50 to replace brake pads, how much gross profit will have been earned on Job #842?

Answer 1

Ans:

A). Cost of the Job:

Total manufacturing overheads= $50,000

Total Direct labor= 8,000

Rate per Direct labor= 50,000/8,000

=> $6.25

Employee time= 40 minutes

Wages Rate = $9 per hour

Total Wages= Wages Rate* Employee Time{in Hour}

=> $9*{40/60}

=> $6

Total cost of the Job= Wages +New Break Pad {Given}+Variable Overhead

=> 6+ 8+ {2/3*6.25}

=> 14+ 4.16

=> $18.166

2. Gross Profit= Replacement Charges- total Cost

=> 50-18.16

=> $31.84