Quah Consulting, a real estate consulting firm, specializes in advising companies on potential new plant sites. Quah Consulting uses a job costing system with a predetermined indirect cost allocation rate computed as a percentage of direct labour costs. At the beginning of the year, managing partner Adora Quah prepared the following plan, or budget, for the year: 156 Chapter 3

Direct labour hours (professionals) .......................................... 14,000

Direct labour costs (professionals)............................................ $2,150,000

Office rent................................................................................ 250,000

Support staff salaries................................................................ 870,000

Utilities..................................................................................... 350,000

At the end of the year, the company had actually incurred the following:

Direct labour cost..................................................................... $1,230,000

Depreciation on manufacturing plant and

equipment............................................................................ 490,000

Property taxes on plant............................................................ 18,500

Sales salaries............................................................................. 24,000

Delivery drivers’ wages............................................................. 16,000

Plant janitors’ wages ................................................................ 11,000

Machine hours........................................................................ 57,000 hours

Requirements

1. Compute Smith’s predetermined manufacturing overhead rate.

2. How much manufacturing overhead was allocated to jobs during the year?

3. How much manufacturing overhead was incurred during the year? Is manufacturing over-head underallocated or overallocated at the end of the year? By how much?

4. Were the jobs overcosted or undercosted? By how much?