Concept explainers
Meadow Construction, Inc. is a home builder in Arizona. Meadow uses a
- a. Purchased materials on account, $450,000.
- b. Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned.
- c. The company incurred total wages of $240,000. Use the data from Item b to assign the wages. Wages are not yet paid.
- d.
Depreciation of construction equipment, $6,300. - e. Other overhead costs incurred: Equipment rentals paid in cash, $40,000; Worker liability insurance expired, $5,000.
- f. Allocated overhead to jobs.
- g. Houses completed: 402, 404.
- h. House sold on account: 404 for $250,000.
Requirements
- 1. Calculate Meadow’s predetermined overhead allocation rate for the year.
- 2. Prepare
journal entries to record the events in the general journal. - 3. Open T-accounts for Work-in-Process Inventory and Finished Goods Inventory.
Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero. - 4. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work-in-Process Inventory account.
- 5. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory.
- 6. Compute gross profit on the house that was sold. What costs must gross profit cover for Meadow Construction?
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Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
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