Compumatics specializes in the analysis and reporting of complex inventory costi

Question

Compumatics specializes in the analysis and reporting of complex inventory costing projects. Materials costs are minimal, consisting entirely of operating supplies (DVDs, inventory sheets, and other recording tools). Labor is the highest single expense, totaling $693,000 for 75,000 hours of work last year. Overhead costs for last year were $916,000 and were applied to specific jobs on the basis of labor hours worked. This year the company anticipates a 25 percent increase in overhead costs. Labor costs will increase by $130,000, and the number of hours worked is expected to increase by 20 percent. 1. Determine the total amount of overhead anticipated this year. 2. Compute the overhead rate for this year. 3. During April of this year, 11,980 labor hours were worked. Calculate the overhead amount assigned to April production.

Explanation / Answer

1. Current overhead = $916,000

After an increase of 25%, the new total overhead will be:

916,000 + 25% of 916,000

= 916,000 + 0.25*916,000

= $1,145,000

2. We know the total overhead for this year.

Total labor hours for this year = 75,000 + 20% of 75,000

= 75,000 +0.20*75,000

= 90,000

So, overhead rate = $1,145,000/90,000 hours

= $12.72 per hour

3. From part 2, we know the overhead rate.

So, if the April production required 11,980 hours, the overhead amount assigned to April production will be:

= 11,980 * $12.72

= $152,412.22

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