Question

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 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		12,000
Fixed overhead cost	$	114,000
Variable overhead cost per direct labor-hour	$	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	$	626
Direct labor cost	$	292
Direct labor-hours used		4

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?

Answer 1

1.Predetermined Overhead Rate
Particulars	Amount in $
a)Direct Labour Hours	12000 Hours
b)Fixed Overhead	114000
c) Variable Overhead Rate	1
d) Fixed Overhead Rate/Hr(b/a)	9.5
e) Overhead Cost/Hr(c+d)	10.5
2.Mr.Wilkes Total Job Cost
Particulars	Amount in $
a)Direct Materials	626
b)Direct Labour	292
c)Over Heads(Labour Hrs * Predetermined rate)	4
Total Job Cost(a+b+c)	960
3.Selling Price
Particulars	Amount in $
a)Total Job Cost	960
b)Add-Mark Up(a*40%)	384
c)Selling Price	1344