3-33 (Job costing for services) The Hillman Company sells and services
lawn mowers snow blowers and other equipment. The service department
uses job order cost system to determine costs of each job, such as oil
changes, tune-ups, and repairs. The department assigns conversion costs
through a cost driver rate on the basis of direct labor hours. The cost
driver rate additionally includes a markup of 25% on the job’s
conversion costs in order to provide a reasonable profit for Hillman.
The customer’s invoice itemizes prices for parts and labor, where the
stated labor rate is the department’s cost driver rate that includes
direct labor cost, assigned overhead costs, and the 25% markup on
conversion costs. Hillman Company’s service department estimated the
following information for 2006. Salaries of mechanics $120,000 Fringe
benefits 54,000 General and administrative 18,000 Depreciation 42,000
Billable direct labor hours 4,500
a. Determine Hillman Company’s service department’s cost driver rate to
be used to assign conversion costs on the basis of billable direct
labor hours.
b. Job 254 required $47.40 of materials and 0.7 direct labor hours. Determine the price changed for job 254.
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