Crandall Corporation makes portable enclosures for festivals, concerts, and othe

ID: 2509797 • Letter: C

Question

Crandall Corporation makes portable enclosures for festivals, concerts, and other events. Its products aren’t mass produced—each unit is made to customer speci cations. Crandall employs a normal job costing system. Direct labor at the company is compensated at a rate of $21 per hour; however, employees receive no pay when they aren’t working on jobs. A predetermined rate based on direct labor-hours is used to assign manufacturing overhead to jobs.

In the past two years, the company incurred manufacturing overhead costs (adjusted for price-level changes using current prices and wage rates) as follows:

Year 1

Year 2

Direct labor-hours worked

144,000

118,000

Manufacturing overhead costs incurred:

Indirect labor

$4,580,000

$5,603,340

Employee benefits

2,204,000

3,134,000

Supplies

858,000

1,367,400

Power

620,000

987,420

Heat and light

244,000

210,870

Supervision

598,000

721,970

Depreciation

2,370,000

Property taxes and insurance

945,000

Total manufacturing overhead costs

$12,419,000

$15,340,000

At the start of Year 3, Crandall has two jobs not yet delivered to customers. Job AT-360 was completed on December 15, Year 2. It’s scheduled to ship out on January 21, Year 3. Job AT-365 is still in progress. The predetermined rate in Year 2 was $155 per direct labor-hour. Data on direct material costs and direct labor-hours for these jobs in Year 2 was as follows:

During Year 3, Crandall incurred direct material costs and direct labor-hours for all jobs worked in Year 3, including the completion of Job AT-365, as follows:

To compute the predetermined overhead rate, Crandall uses the previous year’s actual over- head rate. At the end of Year 3, three jobs had not been shipped. Data on these jobs is as follows:

A. What was the amount in the beginning Finished Goods and beginning Work-in- Process accounts for Year 3?

B. Crandall incurred direct materials costs of $210,000 and used an additional 800 hours in Year 3 to complete Job AT-365. What was the nal (total) cost charged to Job AT-365?

C. What was the overapplied or underapplied overhead for Year 3?

D. Crandall prorates any overapplied or underapplied overhead to Cost of Goods Sold, Finished Goods Inventory, and Work-in-Process Inventory. Prepare a | properly formatted journal entry to prorate the Overapplied or Underapplied Overhead calculated in requirement. As an allocation basis, use the direct labor hours in each account from Year 3.

E. A customer requested that Crandall bid on a job to be nished in Year 4. Crandall has estimated that the job will need approximately $156,000 in direct materials and 8,000 direct labor-hours. Due to the condition of the economy, Crandall believes demand for its services will be below average in Year 4, and the CEO therefore would like to bid aggressively, but doesn’t want to lose money on the project. Crandall estimated essentially no sales or administrative costs connected with this job. What is the minimum amount the company can bid on the job and not incur a loss? (In order to perform an estimation of the variable portion of overhead, use the high-low method.)