Concept explainers
(a)
The job order cost accounting system is also used by service business. But the usage of job order cost system by service business for the service provided to the business. The service business which is using job order costing provides services which are unique to each customers with related costs that are very importance with each customer.
To record:
(a)
Answer to Problem 15E
The journal entries for each transaction is prepared as follows:
Date | Account titles and Explanation | Debit ($) | Credit ($) | |||||
July | 03 | Work in process (175 hours × $150) | 26,250 | |||||
Salaries Payable | 26,250 | |||||||
(Record charges for professional services) | ||||||||
July | 10 | Work in process | 12,500 | |||||
Cash | 12,500 | |||||||
(Record reimbursement of travel costs) | ||||||||
July | 14 | Work in process (260 hours × $185) | 48,100 | |||||
Salaries Payable | 48,100 | |||||||
(Record professional charges) | ||||||||
July | 18 | Work in process | 30,000 | |||||
Consultant fees payable | 30,000 | |||||||
(Record invoice for expert testimony) | ||||||||
July | 27 | Work in process (435 hours × $62) | 26,970 | |||||
Office |
26,970 | |||||||
(Record factory overhead applied) | ||||||||
July | 31 | Office overhead | 28,500 | |||||
Cash | 28,500 | |||||||
(Record administrative and support salaries paid) | ||||||||
July | 31 | Office overhead | 4,000 | |||||
Supplies | 4,000 | |||||||
(Record office supplies used) | ||||||||
July | 31 | Salaries payable | 74,350 | |||||
Cash | 74,350 | |||||||
(Record payment of professional salaries) | ||||||||
July | 31 | 172,500 | ||||||
Fees earned | 172,500 | |||||||
(Record payment of professional salaries) | ||||||||
July | 31 | Cost of services (1) | 143,820 | |||||
Work in process | 143,820 | |||||||
(Record cost of services for the month) |
Table (1)
Explanation of Solution
Working note:
The cost of services is calculated as follows:
(b)
To calculate: if the factory overhead is under-applied or over-applied.
(b)
Answer to Problem 15E
The under (or) over applied overhead is calculated as follows:
Particulars | Amount ($) |
Office overhead incurred (2) | 32,500 |
Less: Office overhead applied | 26,970 |
Underapplied overhead | 5,530 |
Table (2)
Explanation of Solution
Working note:
The overhead incurred is calculated as follows:
The factory overhead is under applied by $5,530.
(c)
gross profit for the service provided for O case.
(c)
Answer to Problem 15E
Answer:
The gross profit is calculated as follows:
Particulars | Amount ($) |
Fees earned | 172,500 |
Less: Cost of services (2) | 149,350 |
Gross Profit | 23,150 |
Table (3)
Explanation of Solution
Working note:
The cost of services is calculated as follows:
Gross profit for the service is $23,150.
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Chapter 2 Solutions
Managerial Accounting
- Huron Manufacturing Co. uses a job order cost system to cost its products. It recently signed a new contract with the union that calls for time-and-a-half for all work over 40 hours a week and double-time for Saturday and Sunday. Also, a bonus of 1% of the employees earnings for the year is to be paid to the employees at the end of the fiscal year. The controller, the plant manager, and the sales manager disagree as to how the overtime pay and the bonus should be allocated. An examination of the first months payroll under the new union contract provisions shows the following: Analysis of the supporting payroll documents revealed the following: a. More production was scheduled each day than could be handled in a regular workday, resulting in the need for overtime. b. The Saturday and Sunday hours resulted from rush orders with special contract arrangements with the customers. The controller believes that the overtime premiums and the bonus should be charged to factory overhead and spread over all production of the accounting period, regardless of when the jobs were completed. The plant manager favors charging the overtime premiums directly to the jobs worked on during overtime hours and the bonus to administrative expense. The sales manager states that the overtime premiums and bonus are not factory costs chargeable to regular production but are costs created from administrative policies and, therefore, should be charged only to administrative expense. Required: 1. Evaluate each positionthe controllers, the plant managers, and the sales managers. If you disagree with all of the positions taken, present your view of the appropriate allocation. 2. Prepare the journal entries to illustrate the position you support, including the accrual for the bonus.arrow_forwardA company has the following transactions during the week. Purchase of $1,000 raw materials inventory Assignment of $500 of raw materials inventory to Job 5 Payroll for 20 hours with $1,000 assigned to Job 5 Factory utility bills of $750 Overhead applied at the rate of $10 per hour What is the cost assigned to Job 5 at the end of the week?arrow_forwardJOB ORDER COSTING TRANSACTIONS Stonestreet Enterprises makes garage doors. During the month of February, the company had four job orders: 205, 206, 207, and 208. Overhead was applied at predetermined rates, while actual factory overhead was recorded as incurred. All four jobs were completed. (a) Purchased raw materials on account, 44,000. (b) Issued direct materials to production: (c) Issued indirect materials to production, 5,700. (d) Incurred direct labor costs: (e) Charged indirect labor to production, 3,400. (f) Paid electricity, heating oil, and repair bills for the factory and charged to production, 5,300. (g) Applied factory overhead to each of the jobs using a predetermined factory over-head rate as follows: (h) Finished Job Nos. 205-208 and transferred to the finished goods inventory account as products L, M, N, and O, respectively. (i) Sold products L, M, N, and O, on account, for 21,000, 20,300, 19,000, and 20,500, respectively. REQUIRED 1. Prepare general journal entries to record transactions (a) through (i). Make compound entries for (b), (d), and (g), with separate debits for each job. 2. Post the entries to the work in process and finished goods T accounts only.arrow_forward
- JOB ORDER COSTING TRANSACTIONS Stonestreet Enterprises makes garage doors. During the month of February, the company had four job orders: 205, 206, 207, and 208. Overhead was applied at predetermined rates, while actual factory overhead was recorded as incurred. All four jobs were completed. (a) Purchased raw materials on account, 44,000. (b) Issued direct materials to production: (c) Issued indirect materials to production, 5,700. (d) Incurred direct labor costs: (e) Charged indirect labor to production, 3,400. (f) Paid electricity, heating oil, and repair bills for the factory and charged to production, 5,300. (g) Applied factory overhead to each of the jobs using a predetermined factory overhead rate as follows: (h) Finished Job Nos. 205208 and transferred to the finished goods inventory account as products L, M, N, and O. (i) Sold products L, M, N, and O, on account, for 21,000, 20,300, 19,000, and 20,500, respectively. REQUIRED 1. Prepare general journal entries to record transactions (a) through (i). 2. Post the entries to the work in process and finished goods accounts only.arrow_forwardA company has the following transactions during the week. Purchase of $3,000 raw materials inventory Assignment of $700 of raw materials inventory to Job 7 Payroll for 10 hours and $3,000 is assigned to Job 7 Factory depreciation of $1,750 Overhead applied at the rate of $200 per hour What is the cost assigned to Job 7 at the end of the week?arrow_forwardLorrimer Company has a job-order cost system. The following debits (credits) appeared in the Work-in-Process account for the month of June. During the month of June, direct labor totaled 30,000 and 24,000 of overhead was applied to production. Finished Goods was debited 100,000 during June. Lorrimer Company applies overhead at a predetermined rate of 80% of direct labor cost. Job number 83, the only job still in process at the end of June, has been charged with manufacturing overhead of 3,400. What was the amount of direct materials charged to Job number 83? a. 3,400 b. 4,250 c. 8,350 d. 7,580arrow_forward
- During the month, Job Arch2 used specialized machinery for 350 hours and incurred $700 in utilities on account. $400 in factory depreciation expense, and $200 in property tax on the factory. Prepare journal entries for the following: A. Record the expenses incurred. B. Record the allocation of overhead at the predetermined rate of $1.50 per machine hour.arrow_forwardEntries and schedules for unfinished jobs and completed jobs Hildreth Company uses a job order cost system. The following data summarize the operations related to production for April, the first month of operations: A. Materials purchased on account, 147,000. B. Materials requisitioned and factory labor used: C. Factory overhead costs incurred on account, 6,000. D. Depreciation of machinery and equipment, 4,100. E. The factory overhead rate is 40 per machine hour. Machine hours used: F. Jobs completed: 101, 102, 103, and 105. G. Jobs were shipped and customers were billed as follows: Job 101, 62,900; Job 102, 80,700; Job 105, 45,500. Instructions 1. Journalize the entries to record the summarized operations. 2. Post the appropriate entries to T accounts for Work in Process and Finished Goods, using the identifying letters as transaction codes. Insert memo account balances as of the end of the month. 3. Prepare a schedule of unfinished jobs to support the balance in the work in process account. 4. Prepare a schedule of completed jobs on hand to support the balance in the finished goods account.arrow_forwardOvertime Allocation Arlin Fabrication Company produces tools on a job order basis. During May, two jobs were completed, and the following costs were incurred: Other factory costs for the month totaled 16,800. Factory over-head costs are allocated one-third to Job 401 and two-thirds to Job 402. a. Describe two alternative methods for assigning the overtime premium cost to Jobs 401 and 402 and explain how the appropriate method would be determined. b. Compute the cost of Jobs 401 and 402 under each of the two methods described in part a.arrow_forward
- Terrills Transmissions uses a job order cost system. A partial list of the accounts being maintained by the company, with their balances as of November 1, follows: The following transactions were completed during November: a. Materials purchases on account during the month, 74,000. b. Materials requisitioned during the month: 1. Direct materials, 57,000. 2. Indirect materials, 11,000. c. Direct materials returned by factory to storeroom during the month, 1,100. d. Materials returned to vendors during the month prior to payment, 2,500. e. Payments to vendors during the month, 68,500. Required: 1. Prepare general journal entries for each of the transactions. 2. Post the general journal entries to T-accounts. 3. Balance the accounts and report the balances of November 30 for the following: a. Cash b. Materials c. Accounts Payablearrow_forwardJob Order Cost Accounting for a Service Company The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July: July 3. Charged 550 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $160 per hour. 10. Reimbursed travel costs to employees for depositions related to the Obsidian case, $22,700. 14. Charged 150 hours of professional time for the Obsidian trial at a rate of $250 per hour. 18. Received invoice from consultants Wadsley and Harden for $45,900 for expert testimony related to the Obsidian trial. 27. Applied office overhead at a rate of $75 per professional hour charged to the Obsidian case. 31. Paid administrative and support salaries of $37,300 for the month. 31. Used office supplies for the month, $12,600. 31. Paid professional salaries of $178,300 for the month. 31. Billed Obsidian…arrow_forwardJob Order Cost Accounting for a Service Company The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July: July 3. Charged 560 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $240 per hour. 10. Reimbursed travel costs to employees for depositions related to the Obsidian case, $19,800. July 10 a. Provide the journal entries for each of these transactions. If an amount box does not require an entry, leave it blank. July 3 July 14 July 18 14. Charged 190 hours of professional time for the Obsidian trial at a rate of $250 per hour. 18. Received invoice from consultants Wadsley and Harden for $65,900 for expert testimony related to the Obsidian trial. July 27 27. Applied office overhead at a rate of $50 per professional hour charged to the Obsidian case. 31. Paid administrative and support salaries of $32,000 for…arrow_forward
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