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The Hillman Company sells and services lawn mowers, snow blowers,and other equipment. The service department uses a job ordercost system to determine costs of each
The Hillman Company sells and services lawn mowers, snow blowers,and other equipment. The service department uses a job ordercost system to determine costs of each job, such as oil changes,tuneups, and repairs. The department assigns conversion coststhrough a cost driver rate on the basis of direct laborhours. The cost driver rate additionally includes a markup of25% on the job's conversion costs in order to provide a reasonableprofit for Hillman. The customer's invoice itemizes pricesfor parts and labor, where the stated labor rate is thedepartment's cost driver rate that includes direct labor costs,assigned overhead costs and the 25% markup on conversioncosts. Hillman company's service department estimated thefollowing information for 2006: Salaries ofmechanics120,000 Fringebenefits54,000 General andadministrative18,000 Depreciation42,000 Billable direct laborhours4,500 a. Determine Hillman Company's service department's costdriver rate to be used to assign conversion costs on the basis ofbillable direct labor costs. b. Job 254 required 47.40 of materials and 0.7 direct laborhours. Determine the price charged for job 254.
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