Question

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. Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 60,000 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $390,000 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 $409,300 and its actual total direct labor was 67,450 hours. 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:

Answer 1

Answer:

(A) $7 overhead rate per labor hour

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

We have to distribute the fixed overhead over the cost drivr

390,000/60,000 = 6.5 fixed overhead rate

then 6.5 + 0.5 variable = 7 overhead rate per labor hour