Question

Records at Hal’s Accounting Services show the following costs for year 1. Direct materials and supplies $ 41,000 Employee costs 2,700,000 Total overhead 1,280,000 Production was 45,000 billable hours. Fixed overhead was $700,000. Assuming no change in billable hours in year 2, direct materials and supplies costs are expected to increase by 10 percent. Direct labor costs are expected to increase by 15 percent. Variable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 percent. Required: a. Year 2 production is expected to be 36,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2? b. Determine the total costs per billable hour for year 1 and year 2.

Answer 1

Instructions are listed below

Step-by-step explanation:

Giving the following information:

Year 1.

Direct materials and supplies $ 41,000

Employee costs 2,700,000

Production was 45,000 billable hours.

Fixed overhead was $700,000

Variable overhead $580,000

Total overhead 1,280,000

Unitary costs Year 1:

Direct materials= 0.91

Direct labor= 60

Variable overhead= 12.89

Unitary Costs Year 2:

Direct materials= 0.91*1.10= 1

Direct labor= 60*1.15= 69

Variable overhead= 12.89

Fixed overhead= 700000*1.05= 735,000

A) Total cost if billable hours= 36,000

Direct material= $36000

Direct labor= $2,484,000

Variable overhead= $464,040

Fixed overhead= $735,000

B)

Total cost per unit year 1= 0.91 + 60 + 12.89 + (700000/45000)= $89.36

Total cost per unit Year 2= 1 + 69 + 12.89 + (735000/36000)= $103.31