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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), $
Computation of total overheads budgeted for department A
Total product cost
Less: direct materials
Less: direct labor
Budgeted overhead for department A
Computation of direct labor wage rate in Department B
Total labor cost, $, (a)
Direct labor hours (b)
12,000
Therfore direct labor wage rate in department B (a/b) =
12.08
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