Question
Speedy Auto Repairs uses job-order costing. Its 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 20,000
Fixed overhead cost $ 350,000
Variable overhead cost per direct labor-hour $ 1.00
Required:
Compute the predetermined overhead rate.
During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information pertains to his job:
Direct materials $ 590
Direct labor cost $ 109
Direct labor-hours used 6
Compute Mr. Wilkes’ total job cost.
If Speedy establishes selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?
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 20,000
Fixed overhead cost $ 350,000
Variable overhead cost per direct labor-hour $ 1.00
Required:
Compute the predetermined overhead rate.
During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information pertains to his job:
Direct materials $ 590
Direct labor cost $ 109
Direct labor-hours used 6
Compute Mr. Wilkes’ total job cost.
If Speedy establishes selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?
Answers
GPT-4o mini
To solve this problem, we will break it down into several steps:
### Step 1: Compute the predetermined overhead rate (POHR).
The formula for the predetermined overhead rate is:
\[
\text{POHR} = \frac{\text{Total Estimated Overhead Costs}}{\text{Estimated Direct Labor-Hours}}
\]
1. Calculate total estimated overhead costs:
- Fixed overhead cost = $350,000
- Variable overhead cost = $1.00 per direct labor-hour × 20,000 direct labor-hours = $20,000
Therefore, total estimated overhead costs:
\[
\text{Total Overhead Costs} = \$350,000 + \$20,000 = \$370,000
\]
2. Calculate the predetermined overhead rate:
\[
\text{POHR} = \frac{\$370,000}{20,000 \text{ direct labor-hours}} = \$18.50 \text{ per direct labor-hour}
\]
### Step 2: Compute Mr. Wilkes’ total job cost.
Total job cost is calculated as:
\[
\text{Total Job Cost} = \text{Direct Materials} + \text{Direct Labor Cost} + \text{Applied Overhead}
\]
1. Direct Materials = $590
2. Direct Labor Cost = $109
3. Apply overhead using the direct labor-hours used:
- Direct labor-hours used = 6 hours
- Applied Overhead = POHR × Direct Labor-hours used:
\[
\text{Applied Overhead} = \$18.50 \times 6 \text{ hours} = \$111
\]
Now we can sum everything up for the total job cost:
\[
\text{Total Job Cost} = \$590 + \$109 + \$111 = \$810
\]
### Step 3: Compute how much Speedy would have charged Mr. Wilkes.
Selling price is calculated using a markup percentage of 40% of total job cost:
\[
\text{Selling Price} = \text{Total Job Cost} + (\text{Total Job Cost} \times \text{Markup Percentage})
\]
\[
\text{Selling Price} = \$810 + (\$810 \times 0.40) = \$810 + \$324 = \$1,134
\]
### Summary of Results:
- **Predetermined Overhead Rate (POHR):** $18.50 per direct labor-hour
- **Total Job Cost for Mr. Wilkes:** $810
- **Selling Price charged to Mr. Wilkes:** $1,134
### Step 1: Compute the predetermined overhead rate (POHR).
The formula for the predetermined overhead rate is:
\[
\text{POHR} = \frac{\text{Total Estimated Overhead Costs}}{\text{Estimated Direct Labor-Hours}}
\]
1. Calculate total estimated overhead costs:
- Fixed overhead cost = $350,000
- Variable overhead cost = $1.00 per direct labor-hour × 20,000 direct labor-hours = $20,000
Therefore, total estimated overhead costs:
\[
\text{Total Overhead Costs} = \$350,000 + \$20,000 = \$370,000
\]
2. Calculate the predetermined overhead rate:
\[
\text{POHR} = \frac{\$370,000}{20,000 \text{ direct labor-hours}} = \$18.50 \text{ per direct labor-hour}
\]
### Step 2: Compute Mr. Wilkes’ total job cost.
Total job cost is calculated as:
\[
\text{Total Job Cost} = \text{Direct Materials} + \text{Direct Labor Cost} + \text{Applied Overhead}
\]
1. Direct Materials = $590
2. Direct Labor Cost = $109
3. Apply overhead using the direct labor-hours used:
- Direct labor-hours used = 6 hours
- Applied Overhead = POHR × Direct Labor-hours used:
\[
\text{Applied Overhead} = \$18.50 \times 6 \text{ hours} = \$111
\]
Now we can sum everything up for the total job cost:
\[
\text{Total Job Cost} = \$590 + \$109 + \$111 = \$810
\]
### Step 3: Compute how much Speedy would have charged Mr. Wilkes.
Selling price is calculated using a markup percentage of 40% of total job cost:
\[
\text{Selling Price} = \text{Total Job Cost} + (\text{Total Job Cost} \times \text{Markup Percentage})
\]
\[
\text{Selling Price} = \$810 + (\$810 \times 0.40) = \$810 + \$324 = \$1,134
\]
### Summary of Results:
- **Predetermined Overhead Rate (POHR):** $18.50 per direct labor-hour
- **Total Job Cost for Mr. Wilkes:** $810
- **Selling Price charged to Mr. Wilkes:** $1,134