Question

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm's direct labor includes salaries of consultants that work at the client's job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients.
Tech Solutions computes its predetermined overhead rate annually on the basis of direct labour-hours. At the beginning of the year, it estimated that 90,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $1,080,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm's actual overhead cost for the year was $1,098,900 and its actual total direct labor was 93,350 hours.
Required:
1) Compute the predetermined overhead rate.
2) During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to the job:
Direct materials $49,200
Direct labor cost $27,900
Direct labor hours worked 360
Compute the total job cost for the Xavier Company engagement.

Answer 1

Answer:

Total cost= $81,600

Explanation:

Giving the following information:

Estimated direct labor hours= 90,000

Estimated fixed overhead= $1,080,000

Variable overhead of $0.50 per direct labor-hour.

First, we need to determine the predetermined overhead rate:

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

Predetermined manufacturing overhead rate= (1,080,000/90,000) + 0.5

Predetermined manufacturing overhead rate= $12.5 per direct labor hour

Xavier Company:

Direct materials $49,200

Direct labor cost $27,900

Direct labor hours worked 360

Total cost= 49,200 + 27,900 + 360*12.5

Total cost= $81,600