Question

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 $18 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		69,900			54,900
Manufacturing overhead costs incurred
Indirect labor	$	2,769,000		$	1,534,500
Employee benefits		1,044,000			819,000
Supplies		699,000			549,000
Power		552,900			582,900
Heat and light		138,900			138,900
Supervision		717,150			777,150
Depreciation		1,983,400			1,983,400
Property taxes and insurance		752,150			752,150
Total manufacturing overhead costs	$	8,656,500		$	7,137,000

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. The predetermined rate in year 2 was $120 per direct labor hour. 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	$	270,900		$	495,900
Direct labor-hours		2,590	hours		3,290	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	$	11,930,000
Direct labor-hours		74,900
Actual manufacturing overhead	$	9,111,000

For the purpose of computing the predetermined overhead rate, O’Leary uses the previous year’s actual overhead rate. 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	$44,100			$67,900			$104,400			$29,800
Direct labor-hours	1,830 hours			1,915 hours			3,104 hours			1,390 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 cost of $57,900 and used an additional 309 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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 $93,400 in direct materials and 5,090 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? (Do not round intermediate calculations.)

Answer 1