Question

Management Accounting

Drew Architectural Design began operations on January 2. The following activity was recorded in the company's Work in Process account for the first month of operations: Work in Process Costs of subcontracted work 90,000 To completed projects 570,000 Direct staff costs 200,000 Studio overhead 320,000 Drew Architectural Design is a service firm, so the names of the accounts it uses are different from the names used in manufacturing companies. Costs of Subcontracted Work is comparable to Direct Materials, Direct Staff Costs is the same as Direct Labour, Studio Overhead is the same as Manufacturing Overhead, and Completed Projects is the same as Finished Goods Apart from the difference in terms, the accounting methods used by the company are identical to the methods used by manufacturing companies. Drew Architectural Design uses a job-order costing system and applies studio overhead to Work in Process on the basis of direct staff costs. At the end of January, only one job was still in process. This job (the Kareen Corporation Headquarters project) had been charged with $13,500 in direct staff costs. Required: 1. Compute the predetermined overhead rate that was in use during January. 2. Complete the following job cost sheet for the partially completed Kareen Corporation Headquarters project: Job Cost Sheet Kareen Corporation Headquarters Project As of January 31 Costs of subcontracted work Direct staff costs Studio overhead Total cost to January 31 $? $ ?

I'd be grateful if someone could show how to approach this management accounting problem. Thanks in advance.

Answer 1

1	Predetermined overhead rate=Studio overhead/Direct staff costs=320000/200000=$ 1.6 per direct staff cost
2			Job cost sheet
						$
	Cost of subcontracted work				(Note:1)	4900
	Direct staff costs					13500
	Studio overhead					21600
	Total cost to January 31					40000
	Note:1
	Kareen corporation project was the only job in process
	Hence, balance in work in process=Cost of Kareen corporation project
	Balance in work in process=90000+200000+320000-570000=$ 40000
	Hence,total cost of kareen corp=$ 40000
					$	$
	Total cost					40000
	Less:
	Direct staff costs				13500
	Studio overhead		(13500*1.6)		21600	35100
	Cost of subcontracted work					4900