Applying ovhead in a service company
Exercise 3-9 Applying Overhead in a Service Company [LO2, LO3, LO5]
Pearson 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
Pearson 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 Labor; 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.
Pearson 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 Krimmer Corporation Headquarters project) had been charged with $13,500 in direct staff costs.
Requirement 1:
Compute the predetermined overhead rate that was in use during January. (Do not include the percent sign (%).
Predetermined overhead rate is what?
Requirement 2:
Complete the following job cost sheet for the partially completed Krimmer Corporation Headquarters project. (Omit the "$" sign in your response.)
Job Cost Sheet
Krimmer Corporation Headquarters Project
As of January 31
Costs of subcontracted work is what amount
Direct staff costs is what amount
Studio overhead is what amount
Total cost to January 31 is what amount
