Question

Please explain/ show work

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 97,500 direct labor-hours would be required for the period's estimated level of client service. The company also Eestimated $1,316,250 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 $1,337,350 and its actual total direct labor was 101,100 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 Direct labor cost Direct labor hours worked $ 41,700 $ 28,800 390 Compute the total job cost for the Xavier Company engagement. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the predetermined overhead rate. (Round your answer to 2 decimal places.) Predetermined overhead rate per DLH

Answer 1

Question 1. Predetermined overhead rate is calculated based on the estimated cost of overhead and estimated direct labor hours. In the question there is both estimated data and actual data. only estimated data is used to determine the predetermined overhead rate. The actual data is used to calculate the under or over absorption of overheads.

Question 2. The predetermined overhead rate computed in above is used to allocate the overhead cost to the job.

The calculation is shown below.

1. Computation of Predetermined overhead rate Predetermined rate is the rate that is calculated to allocate the overhead cost to the jobs based on the allocation base. i.e, either direct labor or machine hours In the question, it has been specified that direct labor is the allocation base Total Overhead Cost Predetermined overhead rate = Direct labor hours worked Fixed + Variable Overheads Predetermined overhead rate = Direct labor hours worked Fixed Overheads = 13,16,250 Variable Overheads = 0.5 per direct labor hour * 97,500 hours estimated = 0.5*97,500 = 48,750 $ Total Overheads = Fixed + Variable = 13,16,250 + 48,750 =13,65,000 %3D 13,65,000 Predetermined overhead rate = 97500 Predetermined overhead rate $14.00 Per DLH 2. Computation of total job cost Amount Particulars Calculation Direct Material 41,700 A Direct Labor 28,800 Overhead Applied 5,460 14*390=5460 Total Manufacturing Cost A+B+C 75,960