[lashann]

I am having the hardest time in this class. The book we are using is really not helpful and does not give very detail examples. Can someone please please help me. I am so confused with this.:confused:

The cost driver rate additionally includes a markup of 25% on the job's conversion cost in order to provida resasonable profit for the company. The customers invoice itemizes prices for parts and labor, where the stated labor rate is the departments cost driver rate that includes direct labor cost, assigned overhead costs and the 25% markup on conversion cost.

Salaries of mechanices $120,000
Fringe benefits 54,000
General & administrative 18,000
Depreciation 42,000
Billable direct labor hrs 4,500

Determine Hillman Companys service department cost driver rate to be used to assign conversion costs on the basis of billable direct labor hours.

I truly do not understand what they are looking for. I have tried and tried this problem on my own and cannot come up with anything. Please help. :confused::(

[rehmanvohra]

Conversion cost means cost of converting raw material into a finished product and consists of direct labor and manufacturing overheads. In a service industry, usually there is no conversion taking place. Instead they provide services. However, in your problem, the costs of labor and manufacturing overheads are:

Direct labor
Salaries of mechanics $120,000

Overheads:
Fringe benefits 54,000
Depreciation 42,000
Total overheads 96,000

Total conversion costs 120,000 + 96,000 = 216,000

Billable direct labor hrs 4,500

Service department cost driver rate: $216,000/4,500 = $48 per direct labor hour