Question

Exercise 5-31 Methods of Estimating Costs: Account Analysis (LO 5-3) Records at Hal's Accounting Services show the following costs for year 1: S Direct materials and supplies Employee costs Total Overhead 47,000 2,600,000 1,320,000 Production was 50,000 billable hours. Fixed overhead was $730,000. 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 40,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2? (Do not round intermediate computations.) Year 2 Cost Cost Item Direct materials and supplies Direct labor Variable overhead Fixed overhead Total costs b. Determine the total costs per billable hour for year 1 and year 2. (Round your answers to 2 decimal places.) Costs Per Billable Hour Year 1 Year 2

Answer 1

a) Year 2 Cost

Direct material and supplies (47000*1.1)	51700
Direct labor (2600000*1.15)	2990000
Variable overhead (11.8*40000)	472000
Fixed overhead (730000*1.05)	766500
Total	4280200

b) Cost per billable hour

	Cost per billable hour
Year 1	(3967000/50000) = 79.34
Year 2	(4280200/40000) = 107.01

2a) Variable cost per machine hour = Change in Cost/Change in machine hour = (109129-96969)/(1606-1288) = 38

Fixed cost = 109129-(1606*38) = 48101

2b) Total fixed cost = 48101+(1400*38) = 101301