O’Leary Corporation manufactures special-purpose portable structures (huts, mobile offices, and so on) for use at construction sites. It only builds to order (each unit is built to customer specifications). O’Leary uses a normal job costing system. Direct labor at O’Leary is paid $28 per hour, but the employees are not paid if they are not working on jobs. Manufacturing overhead is assigned to jobs by a predetermined rate on the basis of direct labor hours. The company incurred manufacturing overhead costs during two recent years (adjusted for price-level changes using current prices and wage rates) as follows.

 

		Year 1			Year 2
Direct labor-hours worked		69,200			56,200
Manufacturing overhead costs incurred
Indirect labor	$	2,848,000		$	2,248,000
Employee benefits		1,038,000			843,000
Supplies		692,000			562,000
Power		649,000			544,000
Heat and light		142,400			142,400
Supervision		782,630			662,850
Depreciation		2,048,500			2,048,500
Property taxes and insurance		795,470			817,250
Total manufacturing overhead costs	$	8,996,000		$	7,868,000

 

At the beginning of year 3, O’Leary has two jobs, which have not yet been delivered to customers. Job MC-270 was completed on December 27, year 2. It is scheduled to ship on January 7, year 3. Job MC-275 is still in progress. For the purpose of computing the predetermined overhead rate, O’Leary uses the previous year’s actual overhead rate.  Data on direct material costs and direct labor-hours for these jobs in year 2 follow.

 

	Job MC-270			Job MC-275
Direct material costs	$	272,200		$	497,200
Direct labor-hours		2,610	hours		3,310	hours

 

During year 3, O’Leary incurred the following direct material costs and direct labor-hours for all jobs worked in year 3, including the completion of Job MC-275.

 

Direct material costs	$	11,842,200
Direct labor-hours		76,200
Actual manufacturing overhead	$	9,648,000

 

At the end of year 3, there were four jobs that had not yet shipped. Data on these jobs follow.

 

	MC-389			MC-390			MC-397			MC-399
Direct materials	$45,400			$69,200			$105,700			$31,100
Direct labor-hours	1,762 hours			2,810 hours			6,210 hours			1,410 hours
Job status	Finished			Finished			In progress			In progress

 

Required:

a. What was the amount in the beginning Finished Goods and beginning Work-in-Process accounts for year 3?

b. O’Leary incurred direct materials costs of $59,200 and used an additional 520 hours in year 3 to complete job MC-275. What was the final (total) cost charged to job MC-275?

c. What was over- or underapplied overhead for year 3?

d. O’Leary prorates any over- or underapplied overhead to Cost of Goods Sold, Finished Goods Inventory, and Work-in-Process Inventory. Prepare the journal entry to prorate the over- or underapplied overhead.

e. A customer has asked O’Leary to bid on a job to be completed in year 4. O’Leary estimates that the job will require about $93,600 in direct materials and 5,110 direct labor-hours. Because of the economy, O’Leary expects demand for its services to be low in year 4, and the CEO wants to bid aggressively, but does not want to lose any money on the project. O’Leary estimates that there would be virtually no sales or administrative costs associated with this job. What is the minimum amount O’Leary can bid on the job and still not incur a loss?

 

Answer rating: 100% (QA)

Step 1 a Beginning Finished Goods for year 3 Job MC270 Direct material Direct l... View the full answer