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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Job 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 175 hours of professional (lawyer) time at a rate of $150 per hour to the Obsidian Co. breech of contract suit to prepare for the trial
10. Reimbursed travel costs to employees for depositions related to the Obsidian case, $185
14. Charged 260 hours of professional time for the Obsidian trial at a rate of $185 per hour
18. Received invoice from consultants Wadsley and Harden for $30,000 for expert testimony related to the Obsidian trial
27. Applied office overhead at a rate of $62 per professional hour charged to the Obsidian case
31. Paid administrative and support salaries of $28,500 for the month
31. Used office supplies for the month, $4,000
31. Paid professional salaries of $74,350 for the month
31. Billed Obsidian $172,500 for successful defense of the case
  1. a. Provide the journal entries for each of these transactions.
  2. b. How much office overhead is over- or underapplied?
  3. c. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.

(a)

To determine

Job order cost system for service business

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: journal entries for each of transactions.

Explanation

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 overhead   26,970
  (Record factory overhead applied)    
       
July 31 Office overhead 28,500  
     Cash   28,500
  (Record administrative and support salaries paid)    
 

(b)

To determine

To calculate: if the factory overhead is under-applied or over-applied.

(c)

To determine
gross profit for the service provided for O case.

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