Snappy Company has a job-order costing system and uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct labor hours were estimated at $100,000 and 40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of $5,000 in direct materials and $2,400 in direct labor. The labor rate is $6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct labor-hours and had incurred $110,250 actual manufacturing overhead cost.
The correct answer is option (A) $42.00
Explanation:
Solution
Given that:
The established rate is given as = 100,000/40,000
= $2.5 per hour
Thus
The cost of the job is shown is shown below:
The direct material = $5,000
The direct labor = $2400
Then
The manufacturing overheard is = 400 * 2.5 = $1,000
So,
The total cost is = $5,000 + $2400 + $1000 = $8,400
To get our unit cost,
Unit cost = $8400/200 = $42.00
It is important to know that, the number of labor hours used in jobs = Total labor cost/Rate per hour
=2,400/6 = 400 hours
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Job 334 total cost: $ 8,400
Unit cost: 8,400 / 200 = $ 42
Explanation:
Total cost: Material + Labor + Overhead
Material: 5,000
Labor: 2,400
Overhead:
[tex]\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate[/tex]
We distribute the expected cost over the expected base:
expected cost: 100,000
cost driver: 40,000 labor hours
cost per hour: 100,000 / 40,000 = 2.5 predetermined overhead
Now we multiply this rate by the hours of the job to know Applied Overhead:
job labor hours x overhead rate:
Job #334 had 2,400 labor cost / $6 rate per hour = 400 hours
400 x 2.5 = 1,000
Total cost: 5,000 + 2,400 + 1,000 = 8,400