Outdoor Industries manufactures custom-designed playground equipment for schools

Question

Outdoor Industries manufactures custom-designed playground equipment for schools and city parks. Outdoor expected to incur $784,700 of manufacturing overhead cost, 41,300 of direct labor hours, and $1,486,800 of direct labor cost during the year (the cost of direct labor is $36 per hour). The company allocates manufacturing overhead on the basis of direct labor hours. During July, Outdoor completed Job 304. The job used 200 direct labor hours and required $15,400 of direct materials. The City of Eastbridge has contracted to purchase the playground equipment at a price of 25% over manufacturing cost. Read the requirements. Requirement 1. Calculate the manufacturing cost of Job 304 First identify the formula, then calculate the predetermined overhead rate Estimated yearly overhead costsEsimated yearly direct labor hours Predetermined overhead rate 784700 41300 19 per hour Calculate the manufacturing cost of Job 304 Direct materials Direct labor 15400 7200 Total job cost Requirement 2. How much will the City of Eastbridge pay for this playground equipment? (Round your answers to the nearest whole number.) Total price to charge

Explanation / Answer

Requirement 1: Predetermined Overhead Rate

Estimated yearly overhead cost/Estimated yearly direct labour hours = Predetermibed Overhead rate

=784700/41300 = 19 per hour

Manufacturing Cost:

Direct material = 15,400

Direct labour = 200*36 = 7200

Manufacturing Overheads = 200*19 = 3800

(since absorbed on the basis of direct labour hours)

Total Job Cost = 26,400

Requirement 2: Price to pay

Manufacturing Cost + 25% Margin = Total Price to Charge

= 26400+6600 = 33,000

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