Ava Advertising Agency (AAA) uses a job costing system for all its advertising projects. Since the advertising agency is a labour-intensive business, AAA set a policy to allocate/apply overhead costs to each job (advertisement) based on labour hours.
On January 1, 2012 AAA estimated its 2012 total overhead costs to be $120,000, and also estimated the total labour hours to be 6,000 hours for 2012. By December 31, 2012, AAA had incurred and accumulated $127,600 actual total overhead costs and 5,800 actual labour hours worked (at $45/hr). The following are a list of four advertisements completed during 2012.
REQUIRED
A. What is the budgeted overhead rate?
B. What is the cost for Job# 1502 on June 30?
C. Compute the ending balance in the total overhead account. Was overhead underapplied or over applied?
D. Prepare the journal entry to close the overhead account. Assume that the underapplied and over applied overhead was not material.
E. A client would like to get a quote for an advertising project before she decides to have her advertisement done by AAA. The cost accountant estimates that the project would take 1,000 labor hours and $45,000 of material costs. What is the cost of this job?
F. If AAA’s mark-up percentage is 40% of its full costs (i.e., add 40% of profi t on its full cost), what is the quote that AAA should give to this client?
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