21.07.2022 - 15:27

# Speedy Auto Repairs uses a job-order costing system. 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, s

Question:

Speedy Auto Repairs uses a job-order costing system. 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 12,000 Fixed overhead cost $114,000 Variable overhead cost per direct labor-hour$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 $626 Direct labor cost$292 Direct labor hours used 4

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?

1. The predetermined overhead rate is calculated by dividing the total estimated overhead costs by the estimated direct labor-hours. In this case, the predetermined overhead rate would be: Predetermined overhead rate = (Fixed overhead cost + (Variable overhead cost per direct labor-hour x Direct labor-hours required)) / Direct labor-hours required = ($114,000 + ($1.00 x 12,000)) / 12,000 = $126,000 / 12,000 =$10.50 per direct labor-hour 2. To calculate the total job cost for Mr. Wilkes' job, we need to add up the direct materials cost, the direct labor cost, and the overhead cost. The overhead cost is calculated by multiplying the predetermined overhead rate by the actual direct labor hours used. In this case, the total job cost would be: Total job cost = Direct materials + Direct labor cost + Overhead cost = $626 +$292 + ($10.50 x 4) =$626 + $292 +$42 = $960 3. If Speedy applies a markup percentage of 40% to its total job cost, then the selling price for Mr. Wilkes' job would be: Selling price = Total job cost + (Markup percentage x Total job cost) =$960 + (0.40 x $960) =$960 + $384 =$1,344