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		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?

Answer 1

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.

1.Predetermined overhead rate = Total overhead cost / Direct labor hours

= $ 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