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 $17 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 Page 302 prices and wage rates) as follows. Year 1 Year 2 Direct labor-hours worked 67,000 54,000 Manufacturing overhead costs incurred Indirect labor Employee benefits Supplies $2,760,000 $2,160,000 1,005,000 810,000 670,000 540,000 627,000 522,000 138,000 138,000 Power Heat and light 776,250 656,250 Supervision Depreciation 1,982,500 1,982,500 Property taxes and insurance 751,250 751,250 Total manufacturing overhead costs $8,710,000 $7,560,000 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 $270,000 $495,000 Direct labor-hours 2,500 hours 3,200 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 $11,840,000 Direct labor-hours 74,000 Actual manufacturing overhead $ 9,120,000 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 $43,200 $67,000 $103,500 $28,900 Direct labor-hours 1,740 hours 2,700 hours 6,100 hours 1,300 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 $57,000 and used an additional 300 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 journal entry to prorate the over- or underapplied overhead computed in requirement (C). Page 303 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 $92,500 in direct materials and 5,000 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? (CMA adapted) S. 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 $17 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 Page 302 prices and wage rates) as follows. Year 1 Year 2 Direct labor-hours worked 67,000 54,000 Manufacturing overhead costs incurred Indirect labor Employee benefits Supplies $2,760,000 $2,160,000 1,005,000 810,000 670,000 540,000 627,000 522,000 138,000 138,000 Power Heat and light 776,250 656,250 Supervision Depreciation 1,982,500 1,982,500 Property taxes and insurance 751,250 751,250 Total manufacturing overhead costs $8,710,000 $7,560,000 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 $270,000 $495,000 Direct labor-hours 2,500 hours 3,200 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 $11,840,000 Direct labor-hours 74,000 Actual manufacturing overhead $ 9,120,000 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 $43,200 $67,000 $103,500 $28,900 Direct labor-hours 1,740 hours 2,700 hours 6,100 hours 1,300 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 $57,000 and used an additional 300 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 journal entry to prorate the over- or underapplied overhead computed in requirement (C). Page 303 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 $92,500 in direct materials and 5,000 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? (CMA adapted) S