DLN is an architectural firm that designs and builds build- ings. It prices each job on a cost plus 20% basis. Overhead costs in 2017 are $8,100,000. DLN's simple cost- ing system allocates overhead costs to its jobs based on number of jobs. There were three jobs in 2017. One customer, Chandler, has complained that the cost and price of its building in Chicago was not competitive. As a result, the controller has initiated a detailed review of the overhead allocation to determine if overhead costs should be charged to jobs in proportion to consumption of overhead resources by jobs. She gathers the following information: Quantity of Cost Drivers Used by Each Project Overhead Manley 8,000 4,500 26,000 Department Design Engineering Construction Cost Driver Costs in 2017 Chandler Нeпry Design department hours Number of engineering hours $3,000,000 1,000,000 4,100,000 $8,100,000 2,000 4,000 29,000 10,000 4,000 27,000 Labor-hours
DLN is an architectural firm that designs and builds build- ings. It prices each job on a cost plus 20% basis. Overhead costs in 2017 are $8,100,000. DLN's simple cost- ing system allocates overhead costs to its jobs based on number of jobs. There were three jobs in 2017. One customer, Chandler, has complained that the cost and price of its building in Chicago was not competitive. As a result, the controller has initiated a detailed review of the overhead allocation to determine if overhead costs should be charged to jobs in proportion to consumption of overhead resources by jobs. She gathers the following information: Quantity of Cost Drivers Used by Each Project Overhead Manley 8,000 4,500 26,000 Department Design Engineering Construction Cost Driver Costs in 2017 Chandler Нeпry Design department hours Number of engineering hours $3,000,000 1,000,000 4,100,000 $8,100,000 2,000 4,000 29,000 10,000 4,000 27,000 Labor-hours
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q.Do you think Chandler had a valid reason for dissatisfaction with the cost and price of its building? How does the allocation based on department rates change costs for each project?
Transcribed Image Text:DLN is an architectural firm that designs and builds build-
ings. It prices each job on a cost plus 20% basis. Overhead costs in 2017 are $8,100,000. DLN's simple cost-
ing system allocates overhead costs to its jobs based on number of jobs. There were three jobs in 2017. One
customer, Chandler, has complained that the cost and price of its building in Chicago was not competitive.
As a result, the controller has initiated a detailed review of the overhead allocation to determine if overhead
costs should be charged to jobs in proportion to consumption of overhead resources by jobs. She gathers
the following information:
Quantity of Cost Drivers Used by
Each Project
Overhead
Manley
8,000
4,500
26,000
Department
Design
Engineering
Construction
Cost Driver
Costs in 2017
Chandler
Нeпry
Design department hours
Number of engineering hours
$3,000,000
1,000,000
4,100,000
$8,100,000
2,000
4,000
29,000
10,000
4,000
27,000
Labor-hours
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