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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
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 $35 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. Direct labor-hours worked Manufacturing overhead costs incurred Indirect labor Employee benefits Supplies Power Heat and light Supervision Depreciation Property taxes and insurance Total manufacturing overhead costs Year 1 70,600 Year 2 57,600 $2,904,000 $2,304,000 1,059,000 864,000 706,000 576,000 663,000 558,000 145,200 145,200 786,690 667,050 2,090,500 823,610 $9,178,000 2,090,500 859,250 $8,064,000 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.
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