Paul’s Construction Company uses a job costing system. It applies overhead to jobs at a rate of 60 percent of direct labor cost. On August 1, the balance in the Work-in-Process Inventory account was $34,000. It had the following jobs in process on August 1:
Job No.
478 (irrigation project)........................................................ $19,600
479 (parking lot construction).............................................. 9,400
480 (street repair) ................................................................ 5,000
Total ..................................................................................... $34,000
Selected transactions for the month of August follow:
(1) Materials issued: Job 480, $600; Job 481, $4,200; Job 482, $2,600; indirect materials, $400.
(2) Paul assigned labor costs as follows: Job 478, $300; Job 479, $2,600; Job 480, $7,800; Job 481, $5,900; Job 482, $1,700; indirect labor, $800.
(3) It applies overhead for August to jobs using an overhead rate of 60 percent of direct labor costs. Actual overhead for the month was $12,000 including the indirect materials and indirect labor noted in (1) and (2) above.
(4) Paul completed Jobs 478 and 479 in August.
Paul’s Construction Company’s management is concerned that costs are higher than anticipated. Management had expected the cost of completed jobs to be as follows:
Job 478: $20,000, when complete
Job 479: $13,000, when complete
Job 480: $15,000, as of August 31
Job 481: $10,000, as of August 31
Job 482: $4,000, as of August 31
Compare the actual job costs to management’s expected costs, and report your results.