Peter Coffin and Paul Bearer own The Grave Undertaking, Inc. and their firm uses a predetermined overhead rate to apply overhead to the production of custom-built coffins. They use a job order cost system. Overhead is applied on the basis of labor hours in Dept. A and on the basis of machine hours in Dept. B. At the start of the year the company made the following budgets for the year's activity:
Dept. A Dept. B
Direct Material Cost mce_markernbsp; 120,000 $ 150,000
Total Product Cost 280,000 395,000
Direct labor Cost ???? ????
Overhead ???? mce_markernbsp; 100,000
Machine hours 3,000 5,000
Labor hours 2,500 12,000
The Average Direct labor wage rate per hour in Dept. A is $15.
REQUIRED/Solution
1 (a). Calculate the total direct labor cost in Department A.
(b). Calculate the direct labor wage rate in Department B
|
Basis of overhead recovery rate in Dept. A = Labour hours.
|
|
|
|
Basis of overhead recovery rate in Dept. B = Machine hours.
|
|
|
| |
|
|
|
Budegeted Cost sheet
|
|
|
Amount in $
|
|
|
Dept. A
|
Dept. B
|
|
Direct materials
|
120,000
|
150,000
|
|
Direct labor
|
37,500
|
145,000
|
|
Prime Cost
|
157,500
|
295,000
|
|
Overheads
|
122,500
|
100,000
|
|
Total Product cost
|
280,000
|
395,000
|
|
|
|
|
| |
|
|
| |
|
|
|
Computation of direct labor cost in Dept. A
|
|
|
|
Average Direct labor wage rate per hour in Dept. A,(a) =
|
$15
|
|
|
Labor hours,(b) =
|
2,500
|
|
|
Total direct labor cost in Department A (a*b), $
|
37,500
|
|
|
|
|
|
| |
|
|
|
Computation of total overheads budgeted for department A
|
|
|
|
Amount in $
|
|
|
|
Dept. A
|
|
|
Total product cost
|
280,000
|
|
|
Less: direct materials
|
120,000
|
|
|
Less: direct labor
|
37,500
|
|
|
|
|
|
|
Budgeted overhead for department A
|
122,500
|
|
|
|
|
|
| |
|
|
|
Computation of direct labor wage rate in Department B
|
|
|
|
Total labor cost, $, (a)
|
145,000
|
|
|
Direct labor hours (b)
|
12,000
|
|
|
Therfore direct labor wage rate in department B (a/b) =
|
12.08
|
|
| |
|
|