# REPCO performs warranty repair work for name-brand kitchen appliances. REPCO bills appliance manufacturers on a costplus basis.

## Question:

REPCO performs warranty repair work for name-brand kitchen appliances. REPCO bills appliance manufacturers on a costplus basis. It has a job-costing system that computes the cost of each order by adding the direct costs of materials and labor and then applying overhead using direct labor hours as the allocation basis.

REPCO uses flexible budgeting to forecast annual overhead. At the beginning of the year, the company projected the annual overhead budget to be $7,200,000 of fixed costs plus$80 per labor hour in variable costs. The firm treats labor costs as variable overhead because its workers do both direct and indirect work. The budgeted annual direct labor hours for the year were 100,000. During the year, REPCO actually spent \$18,000,000 on overhead and labor; actual labor hours were 120,000.

Required:

a. Calculate REPCO's predetermined total overhead rate.

b. Calculate the amount of overapplied or underapplied overhead for the year.

c. REPCO's policy is to write off the amount of overapplied or underapplied overhead to cost of goods sold. By how much will REPCO's income increase or decrease for the year as a result of this policy?

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