Precision Construction Company is concerned about ongoing, large differences between MOH costs actually incurred and budgeted MOH costs. Hoping that a consultant could Recommend improved procedures, Precision retained Stephanie Storlazzi, CMA.
Stephanie immediately requested a listing of construction overhead costs that included, nails, staples drywall tape, supervisory salaries, plaster patches, glue, depreciation on factory equipment and several miscellaneous items. It immediately became evident that these MOH costs, totaling $380,000, substantially exceeded Precision's budgeted MOH of $290,000.
In the past, Precision assigned MOH costs to individual jobs based on the direct labor (DL) hours of its employees. At the beginning of the year, based on the work they had planned and still hoped to earn at that time, Precision budgeted for 110,000 DL hours. In reviewing the payroll records of their employees, Precision now sees that they actually worked 125,000 hours this year while receiving an average wage of $20 per hour.
Required:
a. Based on the above information, determine the budgeted MOH rate based on direct labor hours, apply MOH for the year, and determine underapplied or overapplied MOH for the year.
b. Precision wondered if they should consider a different allocation base, since this construction business is both labor-intensive and material-intensive. Stephanie agrees and determines that total DM costs incurred for the jobs worked on this year amounted to $1,306,897. At the beginning of the year, Precision's budgeted DM costs (for the projects he knew about at the time) were $1,000,000. Determine what the budgeted MOH rate would have been if Precision had used direct material cost as the cost driver, the applied MOH, and underapplied or overapplied MOH.
c. Which cost driver would you recommend Precision use going forward? Why?

Question

Quizplus · Accepted Answer

The Answer of Precision Construction Company is concerned about ongoing, large differences between MOH costs actually incurred and budgeted MOH costs. Hoping that a consultant could Recommend improved procedures, Precision retained Stephanie Storlazzi, CMA.
Stephanie immediately requested a listing of construction overhead costs that included, nails, staples drywall tape, supervisory salaries, plaster patches, glue, depreciation on factory equipment and several miscellaneous items. It immediately became evident that these MOH costs, totaling $380,000, substantially exceeded Precision's budgeted MOH of $290,000.
In the past, Precision assigned MOH costs to individual jobs based on the direct labor (DL) hours of its employees. At the beginning of the year, based on the work they had planned and still hoped to earn at that time, Precision budgeted for 110,000 DL hours. In reviewing the payroll records of their employees, Precision now sees that they actually worked 125,000 hours this year while receiving an average wage of $20 per hour.
Required:
a. Based on the above information, determine the budgeted MOH rate based on direct labor hours, apply MOH for the year, and determine underapplied or overapplied MOH for the year.
b. Precision wondered if they should consider a different allocation base, since this construction business is both labor-intensive and material-intensive. Stephanie agrees and determines that total DM costs incurred for the jobs worked on this year amounted to $1,306,897. At the beginning of the year, Precision's budgeted DM costs (for the projects he knew about at the time) were $1,000,000. Determine what the budgeted MOH rate would have been if Precision had used direct material cost as the cost driver, the applied MOH, and underapplied or overapplied MOH.
c. Which cost driver would you recommend Precision use going forward? Why?

Precision Construction Company Is Concerned About Ongoing, Large Differences Between