The Hillman Company sells and services lawn mowers, snow blowers, and other equi
ID: 2435193 • Letter: T
Question
The Hillman Company sells and services lawn mowers, snow blowers, and other equipment. The service department uses a job order cost system to determine costs of each job, such as oil changes, tune-ups, and repairs. The department assigns conversion costs through a cost driver rate on the basis of direct labor hours. the cost driver rate additionally includes a markup of 25% on the job's conversion costs in order to provide a reasonable profit for Hillman. The customer's invoice itemizes driver rate that includes direct labor costs, assigned overhead costs, and the 25% markup on conversion costs. Hillman Company's service department estimated the following information for 2006:Salaries and Mechanics - $120,000, Fringe Benefits - $54,000, General and Administrative - $18,000, Depreciation - $42,000, Billable Direct Labor Hours - $4,500
Explanation / Answer
Your question is incomplete. It doesn't ask what is required to be answered. However on the basis of my own assumption, I answer the question as follows :
Service department’s cost driver rate to be used to assign conversion costs on the basis of billable direct labor hours.
Salaries of mechanics $120,000
Fringe benefits $54,000
General and administrative $18,000
Depreciation $42,000
Total conversion costs $234,000
Billable hours 4,500 hours and not $4,500
Conversion cost per billable hour ($234,000 / 4,500) $52.00
Markup 25% ($52 x 25%) $13.00
Cost driver rate $65.00 per direct labor hour
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