Question

Exercise 2-6 Job-Order Costing for a Service Company (LO2-1, LO2-2, LO2-3] 0.62 points 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. eBook Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 80,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $680,000 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 $692,000 and its actual total direct labor was 83,000 hours. Hint Print References 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 Direct labor cost Direct labor hours worked $ 38,000 $ 21,000 280

Answer 1

1. Compute Predetermined overhead rate as follows: Estimated Fixed Overhead Predetermined Fixed overhead rate =- Estimated Labor Hours $680,000 80,000 = $8.5 Per DLH Predetermined Variable overhead Rate = $0.50 per DLH Predetermined overhead rate = $8.5+ $0.5 = $9 per DLH Compute the total job cost for the Xavier Company Engagement: Total Job Cost =Direct Materials +Direct Labors Cost+ Overheads applied =$38,000+$21,000+(280 hrs $9) = $38.000+$21,000+$2520 = $61,520