Reference no: EM132825921
Question - Brighton Services repairs locomotive engines. It employs 100 full-time workers at $20 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 $1,037,400
Direct labor 4,400,000
Manufacturing overhead 1,100,000
Of the $1,100,000 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 $137,400 $500,000
102 95,000 312,400
103 94,200 197,400
Total manufacturing overhead 271,400
Total marketing and administrative costs 110,000
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 $30,100 $104,200
102 27,700 88,400
103 4,800 16,200
$62,600 $208,800
In the first quarter of this year, 40 percent of marketing and administrative cost was variable and 60 percent was fixed. You are told that Jobs 101 and 102 were sold for $854,000 and $554,000, respectively. All over- or underapplied overhead for the quarter is written off to Cost of Goods Sold.
Required -
a. Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year.
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.
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).
d. Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems.
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