EXERCISE 2-14 Job-Order Costing for a service Company LO2-1, LO2-2,L02-3 Yancey

Question

EXERCISE 2-14 Job-Order Costing for a service Company LO2-1, LO2-2,L02-3 Yancey Productions is a film studio that uses a job-order costing system. The company's direct materials consist of items such as costumes and props. Its direct labor includes each film's actors directors, and extras. The company's overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. At the beginning of the year, Yancey made the following estimates: Direct labor-dollars to support all productions Fixed overhead cost Variable overhead cost per direct labor-dollar $8,000,000 $4,800,000 $0.05 Required: 1. Compute the predetermined overhead rate. 2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs: $1,259,000 .. . $2,400,000 Direct labor cost. Compute the total job cost for this particular film.

Explanation / Answer

Total variable overhead estimated=($0.05*8,000,000)=$400,000

Total overhead estimated=Total fixed overhead cost+Total variable overhead estimated

(4,800,000+400,000)=$5,200,000

1.Predetermined overhead rate=Total overhead estimated/Direct labor dollars estimated

=$5,200,000/8,000,000

which is equal to

=0.65 direct labor cost(or 65%)

2.Total overhead cost=0.65*2,400,000=$1,560,000

Add:direct material cost=$1,259,000

Add:direct labor cost=$2,400,000

Total job cost=$5,219,000.

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