The Hillman Company sells and services lawn mowers, snowblowers, and other equip
ID: 2433748 • Letter: T
Question
The Hillman Company sells and services lawn mowers, snowblowers, and other equipment. The service department uses a joborder cost system to determine costs of each job, such as oilchanges, tune-ups, and repairs. The department assigns conversioncosts through a cost driver rate on the basis of direct laborhours. The cost driver rate additionally includes a markup of 25%on the job’s conversion costs in order to provide areasonable profit for Hillman. The customer’s invoiceitemizes prices for parts and labor, where the stated labor rate isthe department’s cost driver rate that includes direct laborcosts, assigned overhead costs, and the 25% markup on conversioncosts. Hillman Company’s service department estimated thefollowing information for 2006:
Salaries ofmechanics $120,000
Fringebenefits 54,000
General andadministrative 18,000
Depreciation 42,000
Billable direct laborhours 4,500
a. Determine Hillman Company’s service department’scost driver rate to be used to assign conversion cost on the basisof billable direct labor hours.
Explanation / Answer
$120,000
$54,000
$18,000
$42,000
$234,000
4,500 hours
$52.00
$13.00
$65.00 per directlabor hour
Salaries of mechanics$120,000
Fringe benefits$54,000
General administrative$18,000
Depreciation$42,000
Total$234,000
Billable direct labor hour4,500 hours
Cost driver rate $234,000 / 4,500 hours$52.00
Add : Mark up 25% i.e. $52 x 25%$13.00
Applicable Cost driver rate ($52+ $13)$65.00 per directlabor hour
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.