Question

Yancey Productions is a film studio that uses a job-order costing system. The company’s direct materials consist of items such as costumes and props. Its direct labor includes each film’s actors, directors, and extras. The company’s overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars.

At the beginning of the year, Yancey made the following estimates:

Direct labor-dollars to support all productions	$	8,050,000
Fixed overhead cost	$	4,830,000
Variable overhead cost per direct labor-dollar	$	0.23

Required:

1. Compute the predetermined overhead rate.

2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs:

Direct materials	$	1,284,000
Direct labor cost	$	2,415,000

Compute the total job cost for this particular film.

Answer 1

Given
Variable over head rate	$ 0.23 per direct labour hour
Direct labour dollars to all production	$8,050,000
Fixed cost	$4,830,000
Direct materials	$1,284,000
Direct labour cost	$2,415,000
Computation of Predermined Rate
Fixed cost	$4,830,000
Direct labour cost	$8,050,000
Fixed overhead rate per direct labour dollar($4830000 / $8050000)	$0.6 per direct labour dollar
Predermined overhead rate = Variable overhead rate + Fixed overhead rate
Predermined overhead rate (0.23+0.6)	$0.83 per direct labour dollar
Computation of Job Cost
Direct material	$1,284,000
Direct labour cost	$2,415,000
Overhead cost ($2415000 X 0.83)	$2,004,450
Total Job cost ($1284000+$2415000+$2004450)	$5,703,450