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 $59,800 and used an additional 580 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?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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
| Year 1 | Year 2 | ||||
| Direct labor-hours worked | 69,800 | 56,800 | |||
| Manufacturing overhead costs incurred | |||||
| Indirect labor | $ | 2,872,000 | $ | 2,272,000 | |
| Employee benefits | 1,047,000 | 852,000 | |||
| Supplies | 698,000 | 568,000 | |||
| Power | 655,000 | 550,000 | |||
| Heat and light | 143,600 | 143,600 | |||
| Supervision | 784,370 | 664,650 | |||
| 2,066,500 | 2,066,500 | ||||
| Property taxes and insurance | 807,530 | 835,250 | |||
| Total manufacturing overhead costs | $ | 9,074,000 | $ | 7,952,000 | |
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 | $ | 272,800 | $ | 497,800 | ||
| Direct labor-hours | 2,640 | hours | 3,340 | 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 | $ | 11,842,800 |
| Direct labor-hours | 76,800 | |
| Actual manufacturing overhead | $ | 9,792,000 |
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 | $46,000 | $69,800 | $106,300 | $31,700 |
| Direct labor-hours | 1,768 hours | 2,840 hours | 6,240 hours | 1,440 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 $59,800 and used an additional 580 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
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 $93,900 in direct materials and 5,140 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?
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