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                                       ????                           ????

            Overhead                                     ????                        mce_markernbsp;  100,000

            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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