Speedy Auto Repairs uses a joborder costing system The compa

Speedy Auto Repairs uses a job-order costing system. The company\'s 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 walting 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 Fixed overhead cost Variable overhead cost per direct labor-hour 36,000 $540,000 $ 1.00 Required 1. Compute the predetermined overhead rate 2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job: Direct materials Direct labor cost Direct labor-hours used 7 $685 $153

Solution

Requirement 1 Predetermined Overhead Rate Fixed Overhead rate per DLH =Fixed Overhead cost/ Direct labor hours = $540,000/36,000 DLH = $ 15.00 per DLH Variable Overhead rate per DLH = $ 1 per DLH Predetermined Overhead Rate = $ 15 per DLH + $ 1 per DLH = $ 16.00 per DLH Requirement 2 Amount ($) Direct Materials 685.00 Direct labor 153.00 Overhead applied ( 7 DLH X 16 per DLH) 112.00 Total Cost assinged to Mr.Wikes 950.00 Requirement 3 Total Cost assinged to Mr.Wikes 950.00 Add: Markup (950 X 30%) 285.00 Amount charged to Mr.Wikes 1,235.00