Question

TCost-908 Car Mechanic Inc. uses a job-order costing system. The company applies all of its overhead costs to jobs using a predetermined overhead rate based on direct labor-hours. At the beginning of the year, it made the following estimates: Direct labor-hours required to support estimated output 22,000 Fixed overhead cost $ 253,000 Variable overhead cost per direct labor-hour $ 1.00 During the year, a customer brought in her car for repairs. The following information was available with respect to the car's repairs: Direct materials $ 703 Direct labor cost $ 317 Direct labor-hours used 8 If TCost-908 sets its selling prices by adding a markup percentage of 40% of its total job cost, then how much would the company have charged this customer for her car's repairs?

Answer 1

1. Predetermined overhead rate

Fixed
`\text{overhead cost}` (253,000 / 22,000) = $ 11.5

Variable
`\text{overhead cost}` per direct labor-hour = $ 1

Predetermined overhead rate = $12.5

2. Total job cost $

Direct materials 703

Direct labor cost 317

Applied overhead (8 hours x $12.5 per direct labor hour) = 100

Total job cost = $ 1120

3. Charges = $ 1120 x 140%

= $1568