Question

An engineering firm operates a job costing system. Production overhead is absorbed at the rate of $8.50 per machine hour. In order to allow for non-production overhead costs and profit, a mark- up of 60 per cent of prime cost is added to the production cost when preparing price estimates. The estimated requirements of job number 808 are as follows:

- Direct materials $10 650
- Direct labor $3 260
- Machine hours 140
Calculate the estimated price notified to the customer for job number 808.

Answer 1

The estimated price notified to the customer for job number 808 is $23,446.

Step-by-step explanation:

To calculate the estimated price notified to the customer for job number 808, we need to calculate the production cost and the mark-up. The production cost is the sum of the direct materials cost, direct labor cost, and the overhead cost. The overhead cost is calculated by multiplying the machine hours by the overhead rate per machine hour. In this case, the machine hours for job number 808 is 140, and the overhead rate is $8.50 per machine hour. So the overhead cost is $8.50 x 140 = $1190.

The production cost is $10,650 + $3,260 + $1,190 = $15,100. To calculate the estimated price, we add a mark-up of 60% of the prime cost. The prime cost is the sum of the direct materials cost and the direct labor cost. In this case, the prime cost is $10,650 + $3,260 = $13,910. The mark-up is 60% of $13,910, which is $8,346. The estimated price is the sum of the production cost and the mark-up: $15,100 + $8,346 = $23,446.