Question

# Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts...

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 10,000 Fixed overhead cost \$ 90,000 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 \$ 600 Direct labor cost \$ 180 Direct labor-hours used 2

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 30% of its total job cost, then how much would it have charged Mr. Wilkes?

Job order costing is a type of costing system where costs related to a particular job order are identified and allocated to that particular job in order to find out the total cost related to that particular job.

= \$ 90000 / 10000 + \$ 1 = \$ 9 + \$ 1 = \$ 10.00 per labor hour

2.Calculation of Total Job Cost

 Particulars Amount (\$) Direct material 600 Direct labor 180 Overhead (\$ 10.00 x 2 labour hours) 20 Total Job Cost 800

3. Selling Price using a mark up of 30%

Seling Price = \$ 800 x 130% = \$ 1040

 Total job cost \$ 800 add:mark up 30% 240 Amount charged to Mr .Wilkes \$ 1040

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