Ol' Sol builds to order and installs solar panels on commercial buildings. Ol' Sol uses a job costing system. At the beginning of November, it had two jobs in process: the company had incurred costs of $2,000,000 on the Financial Towers job and $1,800,000 on the Hyatt Suite job as of November 1.
Selected transactions for the month of November follow:
1. Ol' Sol did not incur any additional direct materials costs on the Financial Towers and Hyatt jobs, but did incur direct materials costs on two new jobs, as follows: Bloomfield Stadium, $1,100,000 and Healthy Hospital, $600,000.
2. Ol' Sol incurred direct labor costs on jobs as follows: Financial Towers, $1,300,000; Hyatt Suite, $850,000; Bloomfield Stadium, $1,500,000; and Healthy Hospital, $260,000.
3. It applied service overhead for November to jobs using an overhead rate of 70 percent of direct labor costs. Actual overhead for the month was $2,700,000.
4. It completed the Financial Towers and Hyatt Suite jobs in November. Ol' Sol's management is concerned that costs are higher than anticipated. Managers had expected the cost of completed jobs to be as follows:
Financial Towers: $4,000,000, when complete
Hyatt Suite: $3,000,000, when complete
Bloomfield Stadium: $2,500,000, as of November 30
Healthy Hospital: $1,050,000, as of November 30
Compare the actual job costs to management's expected costs, and report your results. Be sure to include your assessment of the difference between actual and applied service overhead. Is that difference something management should be concerned about when trying to control overhead costs?