The Hillman Company sells and services lawn mowers, snow blowers, and other equipment. The service department uses a 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 costs, 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 cost 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 charged for job 254.