Question
Crandall Corporation makes portable enclosures for festivals, concerts, and other events. Its products arent mass producedeach unit is made to customer speci cations. Crandall employs
Crandall Corporation makes portable enclosures for festivals, concerts, and other events. Its products arent mass producedeach 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 arent 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. Its 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 years 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 doesnt 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.)
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