Reference no: EM132567378

Brighton Services repairs locomotive engines. It employs 100 full-time workers at $21 per hour. Despite operating at capacity, last year's performance was a great disappointment to the managers. In total, 10 jobs were accepted and completed, incurring the following total costs.

Direct materials$1,046,400

Direct labor 4,200,000

Manufacturing overhead 1,000,000

Of the $1,000,000 manufacturing overhead, 30 percent was variable overhead and 70 percent was fixed.

This year, Brighton Services expects to operate at the same activity level as last year, and overhead costs and the wage rate are not expected to change. For the first quarter of this year, Brighton Services completed two jobs and was beginning the third (Job 103). The costs incurred follow.

Job                           Direct Materials                       Direct Labor

101                      $138,300                                $550,000

102                       104,000                                 313,300

103                            95,100                               199,200

Total manufacturing overhead 272,300

Total marketing and administrative costs 121,000

You are a consultant associated with Lodi Consultants, which Brighton Services has asked for help. Lodi's senior partner has examined Brighton Services's accounts and has decided to divide actual factory overhead by job into fixed and variable portions as follows.

Actual Manufacturing Overhead

                        Variable                Fixed

101              $31,000          $105,100

102                  28,600       89,300

103                     5,700           12,600

                           $65,300     $207,000

In the first quarter of this year, 30 percent of marketing and administrative cost was variable and 70 percent was fixed. You are told that Jobs 101 and 102 were sold for $920,000 and $572,000, respectively. All over- or underapplied overhead for the quarter is written off to Cost of Goods Sold.

Required:

Question a. Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year.

Question b. Using last year's overhead costs and direct labor-hours as this year's estimate, calculate predetermined overhead rates per direct labor-hour for variable and fixed overhead.

Question c. Present in T-accounts the normal manufacturing cost flows for the three jobs in the first quarter of this year. Use the overhead rates derived in requirement (b).

Question d. Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems.