Prestige Auto Repair Ltd is a car repair workshop specialising in the repair of luxury European motor vehicles. The company estimates the costs of repair services by recording the cost of labour used to complete the job and the cost of the spare parts used on the repair job and allocating overheads to jobs at 40 per cent of labour cost. Overheads include the wages of the receptionist and secretarial staff, as well as depreciation of a wide range of expensive technical equipment.

During the last week, the company completed two repair jobs: an engine replacement and a complete overhaul of a vehicle’s braking system. The engine replacement involved extensive use of equipment, while the brake overhaul was largely a manual process. The direct costs assigned to the two jobs were as follows: 

Required: 

1. Estimate the cost of each job.

2. Do you think the costing system provides reliable estimates of the costs of the resources used to complete the two jobs? Explain your answer.

Transcribed Image Text:

Brake overhaul Engine replacement Labour cost of mechanic $1 000 $1 100 $1 600 Spare parts $ 180