Question

Yancey Productions is a film studio that uses a job-order costing system. The company’s direct materials consist of items such as costumes and props. Its direct labor includes each film’s actors, directors, and extras. The company’s overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars.

At the beginning of the year, Yancey made the following estimates:

Direct labor-dollars to support all productions	$	8,640,000
Fixed overhead cost	$	5,184,000
Variable overhead cost per direct labor-dollar	$	0.21

Required:

1. Compute the predetermined overhead rate.

2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs:

Direct materials	$	1,350,000
Direct labor cost	$	2,592,000

Compute the total job cost for this particular film.

Compute the predetermined overhead rate

	Direct materials Direct labor Overhead applied Total job cost

Answer 1

Solution:
1)
Predetermined overhead rate = Total Estimated overhead/Estimated direct labour cost
	$6998400/$8640000
	0.81
Predetermined overhead rate = $0.81
Total Estimated overhead = Fixed Overhead cost + Variable overhead cost
$5184000+$1814400
6998400
Total Estimated overhead = $6998400
Variable overhead cost = Variable overhead cost per direct labour dollar *Direct labour dollars
$0.21*$8640000
1814400
Variable overhead cost = $1814400
2)
Calculation of Total Job Cost:
	Cost
Direct material	$1,350,000
Direct labour cost	$2,592,000
Overhead applied	$2,099,520
Total Job cost	$6,041,520
Total Job cost = $6,041,520
Overhead applied = Direct labour cost * Predetermined overhead rate
$2592000*0.81
2099520
Overhead applied = $2099520