Question

Richmond Heating & Cooling installs and services commercial heating and cooling systems. Richmond uses job costing to calculate the cost of its jobs. Overhead is allocated to each job based on the number of direct labor hours spent on that job. At the beginning of the current year, Leisure estimated that its overhead for the coming year would be $66,750. It also anticipated using4,450 direct labor hours for the year. In November, Leisure started and completed the following two jobs:
Job 101 Job 102
Direct materials used $16,500 10,500
Direct labor hours used 195 72

Richmond paid a $30 per hour wage rate to the employees who worked on these Wo jobs.

Requirements:
a. What is Leisure's predetermined overhead rate based on direct labor hours?
b. Calculate the overhead to be allocated based on direct labor hours to each of the two jobs.
c. What is the total cost of Job 101? What is the total cost of Job 102?

Answer 1

Answer:

Instructions are below.

Explanation:

First, we need to calculate the predetermined overhead rate:

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

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

Predetermined manufacturing overhead rate= 66,750/4,450

Predetermined manufacturing overhead rate= 415 per direct labor hour

Now, we can allocate overhead based on actual direct labor hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Job 101= 195*15= $2,925

Job 102= 72*15= $1,080

Finally, we can determine the total cost:

Total cost= direct material + direct labor + allocated overhead

Job 101:

Total cost= 16,500 + 195*30 + 2,925

Total cost= $25,275

Job 102:

Total cost= 10,500 + 72*30 + 1,080

Total cost= $13,740