Question

Records at Hal’s Accounting Services show the following costs for year 1: Direct materials and supplies $ 49,000 Employee costs 2,900,000 Total overhead 1,280,000 Production was 20,000 billable hours. Fixed overhead was $710,000. Assuming no change in billable hours in year 2, direct materials and supplies costs are expected to increase by 10 percent. Direct labor costs are expected to increase by 15 percent. Variable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 percent. Required:

a. Year 2 production is expected to be 16,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2? (Do not round intermediate computations.)

b. Determine the total costs per billable hour for year 1 and year 2. (Round your answers to 2 decimal places.)

Answer 1

Answer a

	Year 2 (with changei.e. 16000 hours)
Direct materials and supplies	$                43,120
Employee costs	$           2,668,000
Variable overhead	$              456,000
Fixed overhead	$              745,500

Answer b

	Year 1 (i.e.20,000 hours)	Year 2 (with changei.e. 16000 hours)
Total costs per billable hour	$                 211.45	$                244.54

Calculations:

	Year 1 (i.e.20,000 hours)	Year 2 (without changei.e. 20000 hours)	Year 2 (with changei.e. 16000 hours)
Direct materials and supplies	$                 49,000	$                53,900	$                43,120
Employee costs	$            2,900,000	$           3,335,000	$           2,668,000
Variable overhead	$               570,000	$              570,000	$              456,000
Fixed overhead	$               710,000	$              745,500	$              745,500
Total Cost	$            4,229,000	$           4,704,400	$           3,912,620
Number of Hours	20,000	20,000	16,000
Total costs per billable hour	$                 211.45	$                235.22	$                244.54

In case of any doubt, please comment.