Smart Strat is an advisory firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm’s direct labor includes salaries of advisors that work at the client’s job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients.
Smart Strat computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 65,000 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $445,250 of fixed overhead cost for the coming period and variable overhead of $1.50 per direct labor-hour. The firm’s actual overhead cost for the year was $550,000 and its actual total direct labor was 67,000 hours.
1.Compute the predetermined overhead rate.
2.During the year, Smart Strat started and completed the Valencia Company engagement. The following information was available with respect to this job:
Direct labor $28,500
Direct labor hours worked300
Compute the total job cost for the Valencia Company engagement.Upload Microsoft Word or Excel File.