Chico’s Clockworks uses job order costing for its custom clock-making business. Job GF1260 is a custom-made grandfather clock. Chico’s job cost sheet for Job GF1260 shows a total cost of $4,265, including direct labor of 50 hours at $20 per hour. Overhead is applied at 100% of direct labor cost. What is the direct materials cost for Job GF1260? A : $3,455 B : $1,000 C : $2,265 D : $2,895

Option C,$2,265 , is correct

Explanation:

Labor cost =direct labor hours*rate per hour

direct labor hours is 50 hours

direct labor cost per hour is $20

labor cost=50*$20=$1,000

Overhead was applied as 100% of direct labor cost

overhead=100%*$1000=$1000

Total cost of job=direct material cost+direct labor+overhead

direct material cost=total cost-direct labor-overhead

direct material cost=$4,265-$1000-$1000=$2,265

The correct option is C,$2,265

$12,943.10

Explanation:

To answer let us begin with knowing the MACRS percentages.

Both machines are considered a 3 year class for MACRS.

3 Year MACRS percentages are as follows,

Year 1= 33.33%

Year 2=44.45%

Year 3=14.81%

Year 4=7.41%

To calculate the Incremental cash flow we would need to subtract the tax on the Pre-tax savings as well as the depreciation tax shield.

DEPRECIATION TAX SHIELD.

Depreciation on New Machine is,

= First year MACRS * purchase price.

= 33.33% * 87,000 ( include installation price)

= $28,997.10

Subtract depreciation on original machine which is now in FOURTH year so we use the 4 year depreciation rate,

= 61,000 * 7.41%

= $4,520.10

Subtracting them would give,

= 28,997.10 - 4,520.10

= $24,477

This is the Additional depreciation.

We need to calculate the tax shield on it.

= 24,477 * 30%

= $7,341.10 is the tax shield.

Now to calculate the Incremental Cash flow.

= Pre-tax Savings - (tax on Pre-tax Savings) + Depreciation tax shield

= 8,000 - (8,000 * 30%) + 7,341.10

= $12,943.10

$12,943.10 is the Incremental Cash flow in year 1.