Question

Mcewan Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on 26,000 direct labor-hours, total fixed manufacturing overhead cost of $195,000, and a variable manufacturing overhead rate of $2.10 per direct labor-hour. Job X941, which was for 50 units of a custom product, was recently completed. The job cost sheet for the job contained the following data:

Total direct labor-hours		400
Direct materials	$	800
Direct labor cost	$	7,000

Required:

Calculate the selling price for Job X941 if the company marks up its unit product costs by 20%.

Answer 1

Overhead absorption rate (Pre-determined Overhead rate) = Variable Overhead rate + (Fixed Overhead Cost / Total Direct Labor Hours)

i.e. = $ 2.10 per Direct Labor Hour + ($ 1,95,000 / 26,000)

i.e. = $ 9.60 per Direct Labor Hour is the predetermined overhead rate.

Calculation of selling price for Job X941 can be done as follows :

Particulars	Amount (in $)
Direct Material Cost	800
Direct Labor Cost	7,000
Total Overhead absorbed (9.60 * 400)	3,840
Total Cost	11,640
Add : Markup on Cost @ 20%	2,328
Selling Price for Job X941	13,968

Hence, the selling price for Job X941 if the company marks up its unit product costs by 20% is $ 13,968. Per unit Cost comes at $ 13,968 / 50 = $ 279.36 per unit