EXERCISE 3–20 Applying Overhead in a Service Company [LO1, LO2, LO3]

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	Â	Â
Studio overhead	320,000	Â	Â

 

Pearson Architectural Design is a service firm, so the names of the accounts it uses are differ- ent 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.

 

 

 

 

Required:

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

2.       Complete the following job cost sheet for the partially completed Krimmer Corporation Head- quarters project.