PLEASE SHOW YOUR CALCULATIONS. Ye Olde Bump & Grind, Inc., is an automobile body
ID: 2335731 • Letter: P
Question
PLEASE SHOW YOUR CALCULATIONS.
Ye Olde Bump & Grind, Inc., is an automobile body and fender repair shop. Repair work is done by hand and with the use of small tools. Customers are billed based on time (direct labor hours) and materials used in each repair job. The shop's overhead costs consist primarily of indirect materials (welding materials, metal putty, and sandpaper), rent, indirect labor, and utilities. Rent is equal to a percentage of the shop's gross revenue for each month. The indirect labor relates primarily to ordering parts and processing insurance claims. The amount of indirect labor, therefore, tends to vary with the size of each job. Henry Lee, manager of the business, is considering using either direct labor hours or number of repair jobs as the basis for allocating overhead costs. He has estimated the following amounts for the coming year. Estimated total overhead Estimated direct labor hours Estimated number of repair jobs $123,000 10,000 300 Required a-1. Compute the overhead application rate based on direct labor hours. (Round your answer to 2 decimal places.) a-2. Compute the overhead application rate based on number of repair jobs. b. The following is information for two repair jobs. Job 1 Repair a dented fender. Direct material used, $25; direct labor hours, 5, direct labor cost, $75 Job 2 Repair an automobile involved in a serious collision. Direct materials used, $3,800; direct labor hours, 200; direct labor cost, $3,000Explanation / Answer
Solution:
a-1 -- Overhead application rate based on direct labor hours
Overhead Application Rate = Estimated Total Overhead $123,000 / Estimated total direct labor hours 10,000
= $12.30 per direct labor hour
a-2 --- Overhead application rate based on number of repair jobs
Overhead Application Rate = Estimated Total Overhead $123,000 / Estimated number of repair jobs 300
= $410 per repair job
b-1
Total cost of Job 1 based on direct labor hours
Direct material used
$25.00
Direct labor cost
$75.00
Applied Overhead (Direct labor hour 5 * Overhead Application Rate $12.30)
$61.50
Total Cost of Job 1
$161.50
Total cost of Job 2 based on direct labor hours
Direct material used
$3,800
Direct labor cost
$3,000
Applied Overhead (Direct labor hour 200 * Overhead Application Rate $12.30)
$2,460
Total Cost of Job 2
$9,260
b-2
Total cost of Job 1 based on number of repair jobs
Direct material used
$25
Direct labor cost
$75
Applied Overhead (1 Repair Job * Overhead Application Rate 410)
$410
Total Cost of Job 1
$510
Total cost of Job 2 based on number of repair jobs
Direct material used
$3,800
Direct labor cost
$3,000
Applied Overhead (1 Job * Overhead Application Rate $410)
$410
Total Cost of Job 2
$7,210
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b-1
Total cost of Job 1 based on direct labor hours
Direct material used
$25.00
Direct labor cost
$75.00
Applied Overhead (Direct labor hour 5 * Overhead Application Rate $12.30)
$61.50
Total Cost of Job 1
$161.50
Total cost of Job 2 based on direct labor hours
Direct material used
$3,800
Direct labor cost
$3,000
Applied Overhead (Direct labor hour 200 * Overhead Application Rate $12.30)
$2,460
Total Cost of Job 2
$9,260
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