Question

The Cameron Corporation manufactures custom-made purses. The following data pertains to Job XY5: Direct materials placed into production $4,000 Direct labor hours worked 50 hours Direct labor rate per hour $15 Machine hours worked 100 hours Factory overhead is applied using a plant-wide rate based on direct labor hours. Factory overhead was budgeted at $80,000 for the year and the direct labor hours were estimated to be 20,000. Job XY5 consists of 50 units. What the total cost assigned to Job XY5?

Answer 1

Answer:

Total cost assigned to Job XY5:

Direct material cost                                               4,000

Direct labour cost (50 hrs x $15 x 50 units)     37,500

Overhead applied (50 hrs x $4 x 50 units)       10,000

Total cost of the job                                              51,500

Overhead absorption rate

= Budgeted overhead

  Budgeted direct labour hours

= $80,000

  20,000 hrs

= $4 per direct labour hour

Explanation:

The total cost of the job is the aggregate of direct material cost, direct labour cost and overhead. Overhead is absorbed based on direct labour hours. We need to calculate overhead absorption rate by dividing the budgeted overhead by budgeted direct labour hours. The overhead absorption rate is used to multiply the direct labour hours of the job in order to obtain the overhead applied to the job.