Exercise 5-31 Methods of Estimating Costs: Account Analysis (LO 5-3) Records at

Question

Exercise 5-31 Methods of Estimating Costs: Account Analysis (LO 5-3) Records at Hals Accounting Services show the following costs for year 1 Direct materials and suppies Employee costs Total overhead S 45,000 2,700,000 1,220,00 Production was 35,000 billable hours. Fixed overhead was $710,000. Assuming no change in bilable 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. Varlable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 peroent Required: a. Year 2 production is expected to be 28,000 billable hours. What are the estmated direct materials, direct labor, variable overhead, and fixed overhcad costs for year 2? (Do not round intermediate computations.) Cost Itenm Year 2 Cost Direct materials and supplies Direct labor ariable 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.) Per Billable Year 1 Year 2

Explanation / Answer

a) Year 2 Value :

b) Cost per billable hours

Year 1 = 3965000/35000 = $113.29 per hour

Year 2 = 4308000/28000 = $153.86 per hour

Cost items Year 2 Cost Direct materials and supplies (45000*110%) 49500 Direct labour (2700000*115%) 3105000 Variable overhead (1220000-710000/35000)*28000 408000 Fixed overhead (710000*1.05) 745500 Total cost 4308000

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