EXERCISE 5–9 Applying Overhead in a Service Company [LO2, LO3, LO5]

Drew 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	Â	Â
Studio  overhead	320,000	Â	Â

 

Drew 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 Labour, 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 com- pany are identical to the methods used by manufacturing  companies.

Drew 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 Kareen Corporation Headquarters project) had been charged with

$13,500 in direct staff costs.

Required:

1.              Compute the predetermined overhead rate that was in use during January.

2.              Complete the following job cost sheet for the partially completed Kareen Corporation Headquarters project: