Records at Hal\'s Accounting Services show the following costs for year 1: Direc

Question

Records at Hal's Accounting Services show the following costs for year 1: Direct materials and supplies Employee costs Total overhead 49,000 2,600,000 1,340,000 Production was 25,000 billable hours. Fixed overhead was $750,000 Assuming no change in billable hours in year 2, direct materials and supplies costs are expected to increase by 10 percent. Direct labor costs are expected to increase by 15 percent. Variable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 percent. Required a. Year 2 production is expected to be 20,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2? (Do not round intermediate computations.) Cost Item Year 2 Cost Direct materials and supplies Direct labor Variable overhead Fixed overhead Total costs b. Determine the total costs per billable hour for year 1 and year 2. (Round your answers to 2 decimal places.) Costs Per Billable Hour Year 1 Year 2

Explanation / Answer

Solution: Calculation of various costs:

Variable overhead = 1340000-750000 = $590,000

Solution:

Cost items cost of year-1 (a) [$] change in cost (b) Year-2 cost at last year's volume (a×b=c) Growth in volume (d) Year-2 cost (c×d) [$] Direct materials and supplies 49,000 110% 53,900 20000/25000 43,120 Direct labor 2,600,000 115% 2,990,000 20000/25000 2,392,000 Variable overhead 590,000 100% 590,000 20000/25000 472,000 Fixed overhead 750,000 105% 787,500 20000/25000 630,000 Total cost 3,989,000 3,537,120

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