Question

Blue Corporation produces widgets and bills customers following a time and materials approach. Blue reports the following budgeted information for 2018:

Direct materials:

Direct materials used:                                    $250,000

Direct materials overhead                 $40,000

Direct materials profit                                    15%

Labor:

Direct labor                                           $450,000

Direct labor overhead                         $110,000

Direct labor hours                                20,000 hours

Direct labor profit:                               $7.00 per hour

On January 1, 2018, a customer requests an estimate from Blue on a job. Blue makes the following assumptions regarding the job:

Direct labor hours:                   200

Direct materials used:                        $7,000

A. Calculate the predetermined direct labor rate

B. Calculate materials loading charge for Blue Corporation.

C. Determine the amount that Blue would charge this customer for the job on January 1.

Answer 1

a. Computation of Predetermined Direct Labour rate
Direct Labour	$4,50,000.00
Direct Labour Overhead	$1,10,000.00
Direct Labour Profit (20000 Hour*$7)	$1,40,000.00
Total Labour cost	$7,00,000.00
Direct Labour Hours	$20,000.00
Direct Labour rate ( 700000/20000)	$35.00
b. Computation of Material Loading Charges
Direct Material Overhead	$40,000.00
Direct material Profit (250000*15%)	$37,500.00
Total Material Loading Charges	$77,500.00
Material Loading Charges on per $ cost	$0.31
(77500/250000)
Material Loading Charges on $7000 Used ($7000*0.31)	$2,170.00
Computation of Amoutn charges from Customer
Direct material used	$7,000.00
Direct Labour (200*$35)	$7,000.00
Material Loading Charges	$2,170.00
Total Amount to be charged	$16,170.00