Add 35% profit onto every job. Activity Driver Driver Frequency Cost of Activity

Question

Add 35% profit onto every job.

Activity Driver Driver Frequency Cost of Activity Direct Labor Direct Labor Hours                   50,000 $ 1,250,000.00 Vacuuming Machine Hours                      2,000 $       62,000.00 Set-up Job                      5,000 $     200,000.00 Testing Tests made                      5,000 $       60,000.00 Customer service Orders taken                      1,200 $       30,000.00 Invoicing Invoices mailed                      2,400 $       48,000.00 Total $ 1,650,000.00 Activity Pool Opening Pump Repair Pool Cleaning Materials 350 1000 50 Direct Labor Hours 15 40 2 Vacuuming 3 0 2 Set-up 1 1 1 Testing 3 0 2 Orders taken 1 1 1 Invoices 2 2 1

Add 35% profit onto every job.

a.       Calculate the current overhead rate per direct labor hour b.       Calculate the cost of each of the jobs using direct labor hour as the rate c.       Calculate the price charged for the job d.       Calculate the ABC charging rates. e.       Recalculate the costs for each job using these new rates. f.        Once again calculate the price Tom would charge for each of these jobs. g.       What does a comparison of the results suggest? Be specific.

Explanation / Answer

Answer: Requirement a Calculate the current overhead rate per direct labor hour Current overhead rate per direct labor hour =Total overhead cost/Total direct labor hours =$1650,000/50,000 $                           33.00 Requirement b The cost of each of the jobs using direct labor hour as the rate would be as follows: Particulars Pool Opening Pump Repair Pool Cleaning Direct material $                              350 $                      1,000 $                  50 Direct Labor $                              375 ($25*15) $                      1,000 ($25*40) $                  50 ($25*2) Overhead cost $                              495 ($33*15) $                      1,320 ($33*40) $                  66 ($33*2) Total cost $                           1,220 $                      3,320 $                166 Add: Mark-up 35% 427 (1220*35%) 1162 (3320*35%) 58.1 (166*35%) Requirement c The price of each product would be as follows: Particulars Pool Opening Pump Repair Pool Cleaning Total cost $                           1,220 $                      3,320 $                166 Add: Mark-up 35% 427 (1220*35%) 1162 (3320*35%) 58.1 (166*35%) Selling Price $                           1,647 ($1220+427) $                      4,482 (3320+1162) $                224 (166+58.1) Requirement d The ABC charging rates would be as follows: Activity Driver Driver Frequency Cost of Activity Cost per activity Direct Labor Direct Labor Hours                   50,000 $ 1,250,000.00 $                       25 ($1250000/50000) Vacuuming Machine Hours                      2,000 $       62,000.00 $                       31 ($62000/2000) Set-up Job                      5,000 $     200,000.00 $                       40 ($200000/5000) Testing Tests made                      5,000 $       60,000.00 $                       12 ($60000/5000) Customer service Orders taken                      1,200 $       30,000.00 $                       25 ($30000/1200) Invoicing Invoices mailed                      2,400 $       48,000.00 $                       20 ($48000/2400) Total $ 1,650,000.00

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