Question

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.

Answer 1

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