## Calculate the total direct labor cost & labor wage rate, Cost Accounting

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Peter Coffin and Paul Bearer own The Grave Undertaking, Inc. and their firm uses a predetermined overhead rate to apply overhead to the production of custom-built coffins.  They use a job order cost system.  Overhead is applied on the basis of labor hours in Dept. A and on the basis of machine hours in Dept. B.   At the start of the year the company made the following budgets for the year's activity:

Dept. A                             Dept. B

Direct Material Cost           mce_markernbsp;  120,000                      \$ 150,000

Total Product Cost                                280,000                        395,000

Direct labor Cost                                       ????                           ????

Machine hours                  3,000                             5,000

Labor hours                                  2,500                           12,000

The Average Direct labor wage rate per hour in Dept. A is \$15.

REQUIRED/Solution

1 (a). Calculate the total direct labor cost in Department A.

(b). Calculate the direct labor wage rate in Department B

 Basis of overhead recovery rate in Dept. A = Labour hours. Basis of overhead recovery rate in Dept. B = Machine hours. Budegeted Cost sheet Amount in \$ Dept. A Dept. B Direct materials 120,000 150,000 Direct labor 37,500 145,000 Prime Cost 157,500 295,000 Overheads 122,500 100,000 Total Product cost 280,000 395,000 Computation of direct labor cost in Dept. A Average Direct labor wage rate per hour in Dept. A,(a) = \$15 Labor hours,(b) = 2,500 Total direct labor cost in Department A (a*b), \$ 37,500 Computation of total overheads budgeted  for department A Amount in \$ Dept. A Total product cost 280,000 Less: direct materials 120,000 Less: direct labor 37,500 Budgeted overhead for department A 122,500 Computation of direct labor wage rate in Department B Total labor cost, \$, (a) 145,000 Direct labor hours (b) 12,000 Therfore direct labor wage rate in department B (a/b) = 12.08

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