O’Leary Corporation

O’Leary Corporation manufactures special purpose portable structures (huts, mobile offices, and so on) for use at construction sites. It only builds to order (each unit is built to customer specifications).O’Leary uses a normal job costing system. Direct labor at O’Leary is paid $17 per hour, but the employees are not paid if they are not working on jobs. Manufacturing overhead is assigned to jobs by a predetermined rate on the basis of direct labor-hours. The company incurred manufacturing overhead costs during two recent years (adjusted for price-level changes using current prices and wage rates) as follows:

Year 1 Year 2
Direct labor-hours worked 69,000 54,000
Manufacturing overhead costs incurred
Indirect labor $ 2,760,000 $ 2,160,000
Employee benefits 1,035,000 810,000
Supplies 690,000 540,000
Power 552,000 522,000
Heat and light 138,000 138,000
Supervision 716,250 656,250
Depreciation 1,982,500 1,982,500
Property taxes and insurance 751,250 751,250

Total manufacturing overhead costs $8,625,000 $7,560,000

At the beginning of year 3, O’Leary has two jobs, which have not yet been delivered to customers. Job MC-270 was completed on December 27, year 2. It is scheduled to ship on January 7, year 3. Job MC-275 is still in progress. The predetermined rate in year 2 was $130 per direct labor hour. Data on direct material costs and direct labor-hours for these jobs in year 2 follow:

Job Job
MC-270 MC-275
Direct material costs $ 270,000 $ 495,000
Direct labor-hours 2,500hours 3,200hours

During year 3, O’Leary incurred the following direct material costs and direct labor hours for all jobs worked in year 3, including the completion of Job MC-275.

Direct material costs $ 11,840,000
Direct labor-hours 74,000
Actual manufacturing overhead $ 9,120,000

For the purpose of computing the predetermined overhead rate, O’Leary uses the previous year’s actual overhead rate. At the end of year 3, there were four jobs that had not yet shipped. Data on these jobs follow:

MC-389 MC-390 MC-397 MC-399
Direct materials $43,200 $67,000 $103,500 $28,900
Direct labor-hours 1,740hours 2,700hours 6,100hour 1,300hours
Job status Finished Finished In progress In progress

(a) What was the amount in the beginning Finished Goods and beginning Work-In-Process accounts for year 3?

Work-in-Process Inventory:___________
Finished Goods Inventory:___________

O’Leary incurred direct materials cost of $57,000 and used an additional 300 hours in year 3 to complete job MC-275. What was the final (total) cost charged to job MC-275?

Final (total) cost charged: _________

(c) What was over- or underapplied overhead for year 3?


O’Leary prorates any over- or under applied overhead to Cost of Goods Sold, Finished Goods Inventory, and Work-In-Process Inventory using direct labor hours as the basis for applying overhead. Prepare the journal entry to prorate the Over- or Under applied Overhead. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

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