Apple produces widgets and bills customers following a time and materials approa
ID: 2404582 • Letter: A
Question
Apple produces widgets and bills customers following a time and materials approach. Apple reports the following budgeted information for 2016:
Direct materials:
Direct materials used: $250,000
Direct materials overhead $40,000
Direct materials profit 15%
Labor:
Direct labor $450,000
Direct labor overhead $110,000
Direct labor hours 20,000 hours
Direct labor profit: $7.00 per hour
On January 1, 2016, a customer requests an estimate from Apple on a job. Apple makes the following assumptions regarding the job:
Direct labor hours: 200
Direct materials used: $7,000
Using the information above, calculate the predetermined direct labor rate and materials loading charge for Apple. Then, determine the amount that Apple would charge this customer for the job on January 1.
Explanation / Answer
$ Direct Labor 450,000 Direct Labor Overhead 110,000 Total labor 560,000 Labor Hours (Hours) 20,000 Labor Rate per hour ( $ ) 28 Add: direct labor profit ($ ) 7 Per hour labor to be charges ( $ 28 + $ 7 ) 35 Direct Material Overhead rate ( $ 40,000 / $ 250,000) 0.16 Total Direct Material Overhead for the Job ( 7,000 x 0.16) 1,120 Add: Direct Material Used 7,000 sub-total 8,120 Add: Direct Material Profit ( $ 8,120 x 15% ) 1,218 Total Materials loading charges 9,338 Material Loading Charges 9,338 Labor Charges ( 200 hours x $ 35 per hour ) 7,000 Total charges to the customer for the Job 16,338
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