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Tutorial and Answer for Speedy Auto Repairs...

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Speedy Auto Repairs uses a job-order costing system. The company's direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics' hourly wages. Speedy's overhead costs include various items, such as the shop manager's salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room. The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates: Direct labor-hours required to support estimated output 20,000 Fixed overhead cost $ 350,000 Variable overhead cost per direct labor-hour $ 1.00 Required: 1. Compute the predetermined overhead rate. 2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job: Direct materials $ 590 Direct labor cost $ 109 Direct labor-hours used 6 Compute Mr. Wilkes' total job cost. 3. If Speedy establishes its selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?

ANS: 1. The estimated total overhead cost is computed as follows: The predetermined overhead rate is computed as follows: Y Estimated fixed overhead Estimated variable overhead

$350,000 + ($1.00 per DLH) (20,000 DLHs) $ 350,000 $1.00 per DLH × 20,000 DLHs 20,000

Estimated total overhead cost $ 370,000 Estimated total overhead (a) Estimated total direct labor-hours (b) Predetermined overhead rate (a) ÷ (b)

$ 370,000 20,000 DLHs $ 18.50 per DLH

2. Overhead applied ($18.50 per DLH × 6 DLH) = $111 3. The price charged to Mr. Wilkes is computed as follows: Total manufacturing cost $ 810 Markup (40%) 324 Selling price $ 1,134...