Question

period were Required: 1. Determine the amount of underapplied or overapplied manufacturing What is the effect on gross margin for the period? 2 EXERCISE 5-9 Applying Overhead in a Service Company (LO2. LO3, L05) 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: 570,000 Work in Process Costs of subcontracted work 90,000 To completed projects 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 dif- ference 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.

Exercise # 5-9

Answer 1

Refer to the below images for the above mentioned questions, in a detailed way of solution with calculations.

cent overhead rate that : compore the was in use predetermined during January : Requirement Since $320000 of to work in process direct staff costs, rate was 160%. Studio overhead cast was on the bars of $200000 the apparent predetermined applied of overhead . Studio Total overhead amount of applied - the allocation base $ 320000 1200000 (Direct Staff cost) - 160% of direct Staff Costs. X Rear @ The Kareen corporation Headquarters project is the only job remaining in world in process at the end of the month; therefore the entire $40000* balance in the work in process account at that point most apply to it. Recognizing that the predetermined overhead rate is 1604 of direct statt costs, the following computation can be made: 40000 490000 + $ 200.000 + $ 320000 & 57000 - 2 Total cost added to the Icareen corporation Headajuarters project : 40000 $13500 $21600 & (35100) Less Direct staff costs studio overhead cout [ 13500 x 16010 costs of sub contracted work $ 4900

By using with this job cast sheet information we can now the careen corporation complete the breadas parters for project : particulars Amount costs of subcontracted work Direct staft costs studio overhead $4900 13500 21600 $ 40,000 Total cost to January 31 7