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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 80,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $680,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firms actual overhead cost for the year was $692,000 and its actual total direct labor was 83,000 hours. Required: a. Compute the predetermined overhead rate. b. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job: Direct Material $38,000Direct Labour Cost $21,000Direct Labour hours worked 280Compute the total job cost for the Xavier Company engagement.
The answer is $9 & $61,520
Predetermined manufacturing overhead rate = total estimated overhead costs ÷ total direct labour hours
Over head rate = (680,000 ÷ 80,000) + 0.5 = $9 per direct labor hour
Calculation of Total cost:
Total cost= direct material + direct labor + overheads allocated
Total cost= 38,000 + 21,000 + 280*9
Total cost= $61,520
Hence Total Job cost is $61,520.
A job order costing method totals all the expenses related to a particular batch of goods. Small batch sizes are ideal for this method, especially when each batch's goods differ from those produced by previous batches.
A system for job order costing might be very intricate. It must monitor data from various sources, such as the following:
Only the line items relevant to a job should be charged to that job from supplier invoices.
Payroll records, which may also include payroll taxes, overtime, and shift differentials, from which the hours worked on a given job are charged to that job.
When inventory goods are removed from stock and charged to a job as needed, material expenses are incurred.
An overhead allocation that comes from a cost pool and is applied to each work in accordance with some type of utilization, such as the number of labor hours used or the number of machine hours used.
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