Arabica Manufacturing Company uses a predetermined manufacturing overhead rate based on a percentage of direct labor cost. At the beginning of 2012, they estimated total manufacturing overhead costs at $1,050,000, and they estimated total direct labor costs at $840,000. In June, 2012, Arabica completed job number 511. Job stats are as follows: How much was the total job cost?

Question

Arabica Manufacturing Company uses a predetermined manufacturing overhead rate based on a percentage of direct labor cost. At the beginning of 2012, they estimated total manufacturing overhead costs at $1,050,000, and they estimated total direct labor costs at $840,000. In June, 2012, Arabica completed job number 511. Job stats are as follows:  How much was the total job cost?

Quizplus · Accepted Answer

Step 1: Calculate the predetermined manufacturing overhead rate:
Predetermined overhead rate = Estimated total overhead costs/Estimated total direct labor costs
Predetermined overhead rate = $1,050,000/$840,000 = 1.25 or 125%

Step 2: Calculate the manufacturing overhead applied to job 511:
Manufacturing overhead applied = Predetermined overhead rate x Actual direct labor cost
Actual direct labor cost = 200 hours x $25/hour = $5,000
Manufacturing overhead applied = 125% x $5,000 = $6,250

Step 3: Calculate the total job cost:
Total job cost = Direct materials + Direct labor + Manufacturing overhead applied
Total job cost = $16,000 + $5,000 + $6,250 = $27,250

Therefore, the total job cost for job number 511 was $27,250. The best choice is B.

Arabica Manufacturing Company Uses a Predetermined Manufacturing Overhead Rate Based