Question

# Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the...

Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 65,000 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated \$487,500 of fixed overhead cost for the coming period and variable overhead of \$0.50 per direct labor-hour. The firm’s actual overhead cost for the year was \$505,700 and its actual total direct labor was 70,900 hours.

Required:

1. Compute the predetermined overhead rate.

2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job:

 Direct materials \$ 49,200 Direct labor cost \$ 24,900 Direct labor hours worked 260

Compute the total job cost for the Xavier Company engagement.

 Ans. 1 Predetermined overhead rate = Total Estimated overhead cost / Estimated labor hours \$520,000 / 65,000 \$8.00 per labor - hour *Calculations: *Variable manufacturing overhead = Variable manufacturing overhead per labor hour * Budgted labor hours \$0.50 * 65,000 \$32,500 *Total estimated overhead cost = Variable manufacturing overhead + Fixed manufacturing overhead \$32,500 + \$487,500 \$520,000 Ans. 2 Particulars Amount Direct materials \$49,200 Direct labor cost \$24,900 Overhead applied \$2,080 Total Job Cost \$76,180 *Calculations: *Overhead cost applied = Predetermined overhead rate * Actual direct labor hours \$8 * 260 \$2,080

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