The Hillman Company sells and services lawn mowers, snow blowers,and other equip
ID: 2435092 • Letter: T
Question
The Hillman Company sells and services lawn mowers, snow blowers,and other equipment. The service department uses a job ordercost system to determine costs of each job, such as oil changes,tuneups, and repairs. The department assigns conversion coststhrough a cost driver rate on the basis of direct laborhours. The cost driver rate additionally includes a markup of25% on the job's conversion costs in order to provide a reasonableprofit for Hillman. The customer's invoice itemizes pricesfor parts and labor, where the stated labor rate is thedepartment's cost driver rate that includes direct labor costs,assigned overhead costs and the 25% markup on conversioncosts. Hillman company's service department estimated thefollowing information for 2006:Salaries ofmechanics 120,000
Fringebenefits 54,000
General andadministrative 18,000
Depreciation 42,000
Billable direct laborhours 4,500
a. Determine Hillman Company's service department's costdriver rate to be used to assign conversion costs on the basis ofbillable direct labor costs.
b. Job 254 required 47.40 of materials and 0.7 direct laborhours. Determine the price charged for job 254.
The Hillman Company sells and services lawn mowers, snow blowers,and other equipment. The service department uses a job ordercost system to determine costs of each job, such as oil changes,tuneups, and repairs. The department assigns conversion coststhrough a cost driver rate on the basis of direct laborhours. The cost driver rate additionally includes a markup of25% on the job's conversion costs in order to provide a reasonableprofit for Hillman. The customer's invoice itemizes pricesfor parts and labor, where the stated labor rate is thedepartment's cost driver rate that includes direct labor costs,assigned overhead costs and the 25% markup on conversioncosts. Hillman company's service department estimated thefollowing information for 2006:
Salaries ofmechanics 120,000
Fringebenefits 54,000
General andadministrative 18,000
Depreciation 42,000
Billable direct laborhours 4,500
a. Determine Hillman Company's service department's costdriver rate to be used to assign conversion costs on the basis ofbillable direct labor costs.
b. Job 254 required 47.40 of materials and 0.7 direct laborhours. Determine the price charged for job 254.
Explanation / Answer
a) Cost Driver Rate
Salaries of mechanics
120,000
Fringe benefits
54,000
General and administrative
18,000
Depreciation
42,000
Total conversion costs
234,000
Billable direct labor hours
4,500
Conversion cost per billable hour($234,000 / 4,500 )
52.00
Markup
25%
Cost driver rate (52 x 1.25) = $65 per DLH
$65.00
b) Chargeable price for Job 254
Materials $47.40
Conversion Cost (0.7 x $65) $45.50
Chargeable price $92.90
Salaries of mechanics
120,000
Fringe benefits
54,000
General and administrative
18,000
Depreciation
42,000
Total conversion costs
234,000
Billable direct labor hours
4,500
Conversion cost per billable hour($234,000 / 4,500 )
52.00
Markup
25%
Cost driver rate (52 x 1.25) = $65 per DLH
$65.00
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