Question

Bundy Car Mechanic Inc. uses a job-order costing system. The company applies all of its overhead costs to jobs using a predetermined overhead rate based on direct labor-hours. At the beginning of the year, it made the following estimates:

Direct labor-hours required to support estimated output		40,000
Fixed overhead cost	$	640,000
Variable overhead cost per direct labor-hour	$	1.00

During the year, a customer brought in her car for repairs. The following information was available with respect to the car's repairs:

Direct materials	$	707
Direct labor cost	$	230
Direct labor-hours used		9

If Bundy sets its selling prices by adding a markup percentage of 50% of its total job cost, then how much would Bundy have charged this customer for her car's repairs?

Answer 1

Answer- Bundy would have charged this customer for her car's repairs = $1635.

Explanation- Total job cost =Direct materials+ Direct labor cost+ Overhead cost

= $707 +$230+ {($16 per hour+$1 per hour)*9 direct labor hour}

= $707 +$230+ $153

= $1090

Selling price = Total job cost+ Mark-up percentage

= $1090 + ($1090*50%)

= $1090 +$545

= $1635

Where- Predetermined overhead rate for fixed factory overhead cost = Total fixed factory overhead cost/ Budgeted direct labor hours

= $640000/40000 hours

= $16 per hour