Problem
Whitley Construction Company is in the home remodeling business. Whitley has three teams of highly skilled employees, each of whom has multiple skills involving carpentry, painting, and other home remodeling activities. Each team is led by an experienced employee who coordinates the work done on each job. As the needs of different jobs change, some team members may be shifted to other teams for short periods of time. Whitley uses a job costing system to determine job costs and to serve as a basis for bidding and pricing the jobs. Direct materials and direct labor are easily traced to each job using Whitley's cost tracking software. Overhead consists of the purchase and maintenance of construction equipment, some supervisory labor, the cost of bidding for new customers, and administrative costs. Whitley uses an annual overhead rate based on direct labor hours.
Whitley has recently completed work for three clients: Harrison, Barnes, and Tyler. The cost data for each of the three jobs are summarized below:
|
Job
|
Direct Materials
|
Direct Labor Hours
|
Direct Labor Cost
|
|
Harrison
|
$ 6,873
|
30
|
$ 15,623
|
|
Barnes
|
13,349
|
84
|
23,160
|
|
Tyler
|
43,362
|
141
|
50,630
|
Budgeted direct materials cost and direct labor cost for the year are estimated at $490,000 and $680,000, respectively. Direct labor hours are budgeted at 26,500 hours, and total overhead is budgeted at $715,500.
Task
• Calculate the total cost of each of the three jobs.
• Suppose that for the entire year, Whitley used 27,800 labor hours and total actual overhead was $752,000. What is the amount of underapplied or overapplied overhead?