Question

Bundy Car Mechanic Inc. uses a job-order costing system. The company applies all of its overhead costs to jobs using a predetermined overhead rate based on direct labor-hours. At the beginning of the year, it made the following estimates:
Direct labor-hours required to support estimated output 46,000
Fixed overhead cost $805,000
Variable overhead cost per direct labor-hour $1.00

During the year, a customer brought in her car for repairs. The following information was available with respect to the car's repairs:

Direct materials $719
Direct labor cost $177
Direct labor—hours used 7

If Bundy sets its selling prices by adding a markup percentage of 30% of its total job cost, then how much would Bundy have charged this customer for her car's repairs?

Answer 1

Answer:

Selling price= $1,336

Explanation:

Giving the following information:

Direct labor-hours required to support estimated output 46,000

Fixed overhead cost $805,000

Variable overhead cost per direct labor-hour $1.00

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= (805,000/46,000) + 1

Predetermined manufacturing overhead rate= $18.5 per direct labor hour

Now, we can calculate the total cost:

Direct materials $719

Direct labor cost $177

Direct labor—hours used 7

Total cost= 719 + 177 + 18.5*7= $1,027.7

Finally, the selling price:

Selling price= 1,027.7*1.3= $1,336