Question

Crandall Corporation makes portable enclosures for festivals, concerts, and other events. Its products aren’t mass produced—each unit is made to customer speci cations. Crandall employs a normal job costing system. Direct labor at the company is compensated at a rate of $21 per hour; however, employees receive no pay when they aren’t working on jobs. A predetermined rate based on direct labor-hours is used to assign manufacturing overhead to jobs.

In the past two years, the company incurred manufacturing overhead costs (adjusted for price-level changes using current prices and wage rates) as follows:

	Year 1	Year 2
Direct labor-hours worked	144,000	118,000
Manufacturing overhead costs incurred:
Indirect labor	$4,580,000	$5,603,340
Employee benefits	2,204,000	3,134,000
Supplies	858,000	1,367,400
Power	620,000	987,420
Heat and light	244,000	210,870
Supervision	598,000	721,970
Depreciation	2,370,000	2,370,000
Property taxes and insurance	945,000	945,000
Total manufacturing overhead costs	$12,419,000	$15,340,000

At the start of Year 3, Crandall has two jobs not yet delivered to customers. Job AT-360 was completed on December 15, Year 2. It’s scheduled to ship out on January 21, Year 3. Job AT-365 is still in progress. The predetermined rate in Year 2 was $155 per direct labor-hour. Data on direct material costs and direct labor-hours for these jobs in Year 2 was as follows:

	Job AT-360	Job AT-365
Direct Labor Cost	680,000	947,000
Direct Labor-hours	4,800 hours	6,200 hours

During Year 3, Crandall incurred direct material costs and direct labor-hours for all jobs worked in Year 3, including the completion of Job AT-365, as follows:

Direct material cost	$15,780,000
Direct labor hours	150,000
Actual manufacturing overhead	$18,609,400

To compute the predetermined overhead rate, Crandall uses the previous year’s actual over- head rate. At the end of Year 3, three jobs had not been shipped. Data on these jobs is as follows:

	AT-285	AT-288	AT-292
Direct Materials	$154,000	$224,500	$112,400
Direct Labor-Hours	2,600 hours	3,400 hours	7,500 hours
Job Status	Finished	Finished	In-Progress

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

B. Crandall incurred direct materials costs of $210,000 and used an additional 800 hours in Year 3 to complete Job AT-365. What was the nal (total) cost charged to Job AT-365?

C. What was the overapplied or underapplied overhead for Year 3?

D. Crandall prorates any overapplied or underapplied overhead to Cost of Goods Sold, Finished Goods Inventory, and Work-in-Process Inventory. Prepare a | properly formatted journal entry to prorate the Overapplied or Underapplied Overhead calculated in requirement. As an allocation basis, use the direct labor hours in each account from Year 3.

E. A customer requested that Crandall bid on a job to be nished in Year 4. Crandall has estimated that the job will need approximately $156,000 in direct materials and 8,000 direct labor-hours. Due to the condition of the economy, Crandall believes demand for its services will be below average in Year 4, and the CEO therefore would like to bid aggressively, but doesn’t want to lose money on the project. Crandall estimated essentially no sales or administrative costs connected with this job. What is the minimum amount the company can bid on the job and not incur a loss? (In order to perform an estimation of the variable portion of overhead, use the high-low method.)

Answer 1

A.

Beginning Finished Goods for Year 3		1524800
Beginning Work-in-Process for Year 3		2038200

Working:

		Job - AT 360	Job - AT 365
Direct material	A	680000	947000
Direct labor hours	B	4800	6200
Direct labor rate	C	21	21
Direct Labor Cost (B X C)	D	100800	130200
Predetermined ovehread per labor hour	E	155	155
Overhead applied (B X E)	F	744000	961000
Total Cost incurred in Year 2 (A+D+F)	G	1524800	2038200

B.

Total cost charged to Job - AT365 in year 3		330800
Totl cost of Job - AT365		2369000

Working:

Beginning work-in-process for Job - AT365	A	2038200
Direct material incurred in year 3	B	210000
Direct labor hours incured in year 3	C	800
Direct labor rate per hour	D	21
Direct labor cost incurred in year 3 (C X D)	E	16800
Predetermined overhead rate for Year 3 *	F	130
Overhead applied to Job - At365 in year 3 (C X F)	G	104000
Total cost charged to Job - AT365 in year 3 (B+E+G)	H	330800
Totl cost of Job - AT365 (A+H)		2369000

Total actual ovehread for Year 2		15340000
Actual direct labor hours for Year 2		118000
Actual overhead rate per labor hour *		$130.00

C.

Overapplied overhead for Year 3

890600

Working:

Direct labor hours worked in Year 3	A	150000
Predetermined overhead rate per hour	B	130
Overhead applied for production in year 3 (A X B)	C	19500000
Actual overhead incured in year 3	D	18609400
Overapplied overhead (C - D)	E	890600

D.

		Cost of goods	Finished	In process
Overappiled overhead allocation		168968	457621	264012

Working:

		Total	Sold	Finished			In proces
			AT360	AT - 365	AT - 285	AT - 288	AT - 292
Direct labor hours		25300	4800	7000	2600	3400	7500
Overapplied overhead		890600
Rate per direct labor hour		35.20
Overhead allocated			168968	246411	91524	119685	264012