Question

Plantwide Overhead Rate, Activity-Based Costing, Job Costs

Foto-Fast Copy Shop provides a variety of photocopying and printing services. On June 5, the owner invested in some computer-aided photography equipment that enables customers to reproduce a picture or illustration, input it digitally into the computer, enter text into the computer, and then print out a four-color professional quality brochure. Prior to the purchase of this equipment, Foto-Fast Copy Shop's overhead averaged $30,400 per year. After the installation of the new equipment, the total overhead increased to $83,600 per year. Foto-Fast Copy Shop has always costed jobs on the basis of actual materials and labor plus overhead assigned using a predetermined overhead rate based on direct labor hours. Budgeted direct labor hours for the year are 7,600, and the wage rate is $9 per hour.
Required:
1. What was the predetermined overhead rate prior to the purchase of the new equipment?
$ per direct labor hour
2. What was the predetermined overhead rate after the new equipment was purchased?
$ per direct labor hour
3. Suppose Rick Anselm brought in several items he wanted photocopied. The job required 600 sheets of paper at $0.03 each and 36 minutes of direct labor time. What would have been the cost of Rick's job on May 20? On June 20? If required, round your answers to the nearest cent. Round your intermediate computations to two decimals places and final answer to the nearest dollar
Total job cost
May 20 $
June 20 $
4. Suppose that the owner decides to calculate two overhead rates, one for the photocopying area based on direct labor hours as before, and one for the computer-aided printing area based on machine time. Estimated overhead applicable to the computer-aided printing area is $55,440, and forecasted usage of the machines is 2,100 hours. What are the two overhead rates? If required, round your answers to the nearest cent.

Answer 1

Foto-FAst Copy Shop

1. Predetermined overhead rate = $4 per direct labor hour

2. Predetermined overhead rate = $11 per direct labor hour

3. Total job cost (Rick Anselm):

May 20 = $26.00

June 20 = $30.00

4. The two overhead rates:

a. $26.40 per machine hour

b. $3.71 per direct labor hour

Step-by-step explanation:

a) Data and Calculations:

Average overhead per year prior to the purchase of the new equipment = $30,400

Average overhead per year after the installation of new equipment = $83,600

Budgeted direct labor hours for the year = 7,600

Wage rate = $9 per hour

1. Predetermined overhead rate prior to the purchase of the new equipment

= $4 ($30,400/7,600)

2. Predetermined overhead rate after the new equipment was purchased

= $11 ($83,600/7,600)

3. Cost of Rick Anselm's job on May 20:

Materials ($0.03 * 600) $18.00

Labor ($9 * 36/60) 5.40

Overhead applied 2.40 ($4 * 36/60)

Total cost of job = $25.80 = $26

Cost of Rick Anselm's job on June 20:

Materials ($0.03 * 600) $18.00

Labor ($9 * 36/60) 5.40

Overhead applied 6.60 ($11 * 36/60)

Total cost of job = $30.00

4. Overhead Rates Photocopying Computer Printing Total

Overhead cost $55,440 $28,160 $83,600

Machine hours 2,100

Direct labor hours 7,600

Overhead rates $26.40 $3.71