Collier Company installs carpet. Since each customers’ needs are different, Coll
ID: 2396557 • Letter: C
Question
Collier Company installs carpet. Since each customers’ needs are different, Collier Company uses job costing. Upon accepting a customer’s order, the carpet selected is cut at the warehouse to correct dimensions and then the carpet is delivered and installed at the customer’s facility. Collier has decided to use a predetermined overhead rate based on machine hours. The estimated annual overhead is $585,000 with an estimated 2,600 machine hours. The following information relates to Job 101:
direct materials $10,000
direct labor cost 7,000
labor hours 40
machine hours 8
A. If a markup of 20% is applied to all orders, what is the sales price for Job 101?
B. Suppose that Collier Company decided to use a separate overhead rate for the cutting and installation processes. The overhead rate for cutting would be based on machine hours and the installation process would be based on labor hours. If $585,000 estimated annual overhead is separated as follows, what would be the applied overhead to Job 101?
Estimated Overhead Estimated Hour Usage
cutting $390,000 2,600 machine hours
installation 195,000 2,000 labor hours
Explanation / Answer
Answers
----Working----
A
Annual Overhead
$ 585,000.00
B
Estimated machine hours
2600
C=A/B
Overhead rate per machine hour
$ 225.00
D
Job 01 no. of machine hours
8
E=C x D
Overheads allocated
$ 1,800.00
Answer:
A
Direct Materials
$ 10,000.00
B
Direct Labor Cost
$ 7,000.00
C
Allocated overhead cost
$ 1,800.00
D=A+B+C
Total cost
$ 18,800.00
E=D x 20%
Mark Up 20%
$ 3,760.00
F = D+E
Sales Price
$ 22,560.00
----Working----
Working
Cutting
Installation
Total
A
Total Overheads
$ 390,000.00
$ 195,000.00
$ 585,000.00
B
No. of hours of allocation basis
2600
2000
C=A/B
Overhead rate per (machine or labor) hour
$ 150.00
$ 97.50
per machine hours
per labor hour
D
No. of hours for Job 101
8
40
machine hours
labor hours
E = C x D
Overhead allocated
$ 1,200.00
$ 3,900.00
$ 5,100.00
Answer
A
Direct Materials
$ 10,000.00
B
Direct Labor Cost
$ 7,000.00
C
Allocated overhead cost
$ 5,100.00
D=A+B+C
Total cost
$ 22,100.00
E=D x 20%
Mark Up 20%
$ 4,420.00
F = D+E
Sales Price
$ 26,520.00
A
Annual Overhead
$ 585,000.00
B
Estimated machine hours
2600
C=A/B
Overhead rate per machine hour
$ 225.00
D
Job 01 no. of machine hours
8
E=C x D
Overheads allocated
$ 1,800.00