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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 Fly Company pro vides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The Fly Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 65% of media purchases.

On August 1, the four advertising projects had the following accumulated costs:

August 1 Balances
Vault Bank $270,000
Take Off Airlines 80,000
Sleepy Tired Hotels 210,000
Tastee Beverages 115,000
Total $675,000

During August, The Fly Company incurred the following direct labor and media purchase costs related to preparing advertising; for each of the four accounts:

  Direct Labor Media Purchases
Vault Bank $ 190,000 $ 710,000
Take Off Airlines 85,000 625,000
Sleepy Tired Hotels 372,000 455,000
Tastee Beverages 421,000 340,000
Total $1,008,000 $2,130,000

At the end of August, both the Vault Bank and Take Off Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of Services account. Journalized the summary entry to record each of the following for the month;

a. Direct labor costs

b. Media purchases

c. Overhead applied

d. Completion of Vault Bank and Take Off Airlines campaigns

(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 customer with related costs that are very importance with each customer.

To record: journal entry for direct labor cost for the month

Explanation

The journal entry for direct labor cost is prepared as follows:

(b)

To determine

To record: journal entry for media purchases cost for the month

(c)

To determine

To record: journal entry for overhead applied for the month

(d)

To determine

To record: journal entry for completion VB and TO advertising campaigns for the month

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