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 $505,700 and its actual total direct labor was 70,900 hours.
1. Compute the predetermined overhead rate.
2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job:
|Direct labor cost||$||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|
|*Variable manufacturing overhead = Variable manufacturing overhead per labor hour * Budgted labor hours|
|$0.50 * 65,000|
|*Total estimated overhead cost = Variable manufacturing overhead + Fixed manufacturing overhead|
|$32,500 + $487,500|
|Direct labor cost||$24,900|
|Total Job Cost||$76,180|
|*Overhead cost applied = Predetermined overhead rate * Actual direct labor hours|
|$8 * 260|
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