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 labor-hours. At the beginning of the year, it estimated that 100,000 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $1,400,000 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 $1,418,700 and its actual total direct labor was 104,000 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 this job:

Direct materials	$	41,250
Direct labor cost	$	27,800
Direct labor hours worked		400

Compute the total job cost for the Xavier Company engagement.

a. Compute the predetermined overhead rate. (Round your answer to 2 decimal places.)

b. Compute the total job cost for the Xavier Company engagement. (Round your intermediate calculations to 2 decimal places.)

Direct Materials:

Direct Labor:

Overhead Applied:

Total Manufacturing Cost:

Answer 1

1.

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labor hours

Predetermined overhead rate = $1,400,000+100,000*$0.50 / 100,000 = $14.5

2.

Direct material	$41,250
Direct labor cost	27,800
Overhead applied (400*$14.5)	5,800
Total manufacturing cost	$74,850