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The company's direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics' hourly wages
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 Fixed overhead cost Variable overhead cost per direct labor-hour 10,000 $90,000 $ 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 Direct labor cost Direct labor-hours used $ 600 $180 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?
Predetermined overhead rate per DLH
Direct materials Direct labor Overhead applied Total cost assigned to Mr. Wilkes
Amount charged to Mr. Wilkes
Expert Solution
The estimated total overhead cost is computed as follows:
Y = $90,000 + ($1.00 per DLH) (10,000 DLHs)
|
Estimated fixed overhead................................................................. |
$90,000 |
|
Estimated variable overhead: $1.00 per DLH × 10,000 DLHs........ |
10,000 |
|
Estimated total overhead cost........................................................... |
$100,000 |
The predetermined overhead rate is computed as follows:
|
Estimated total overhead (a).............................................. |
$100,000 |
|
|
Estimated total direct labor-hours (b)................................ |
10,000 |
DLHs |
|
Predetermined overhead rate (a) ÷ (b)............................... |
$10 |
per DLH |
2. Total manufacturing cost assigned to Mr. Wilkes:
|
Direct materials................................................................................... |
$600 |
|
Direct labor......................................................................................... |
180 |
|
Overhead applied ($10 per DLH × 2DLH)................................... |
20 |
|
Total cost assigned to Mr. Wilkes........................................................ |
$800 |
3. The price charged to Mr. Wilkes is computed as follows:
|
|
Job 550 |
|
Total manufacturing cost...................................................................... |
$ 800 |
|
Markup (30%)....................................................................................... |
240 |
|
Selling price.......................................................................................... |
$1,040 |
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