Fixed overhead rate
= Fixed overhead cost / Direct labor hours required to support estimated output
= $350,000 / 20,000
= $17.50 per direct labor hour
Variable overhead rate = $1 per direct labor hour
Predetermined overhead rate = $17.50 + $1 = $18.50 per direct labor hour.
Now calculate the amount of overhead applied as follows:
Overhead applied = Predetermined overhead rate x Direct labor hours used = $18.50 x 6 = $111
Now calculate total cost assigned to Mr. Wilkes as follows:
|Total cost assigned to Mr. Wilkes||810|
Now calculate amount charged to Mr. Wilkes as follows:
Total cost assigned to Mr. Wilkes = $810
Markup percentage = 40% of total job cost
Amount charged to Mr.
Wilkes = $810 x 140% = $1,134.