Question

Job Order Cost Accounting for a Service Company The Fly Company provides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The FIL 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 50% of media purchases. On August 1, the four advertising projects had the following accumulated costs: Vault Bank Take Off Airlines August 1 Balances $78,400 23,500 54,900 33,700 $190,500 Sleepy Tired Hotels Tastee Beverages Total 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 Vault Bank Take Off Airlines Sleepy Tired Hotels Tastee Beverages $55,000 24,500 108,100 122,900 $310,500 Media Purchases $200,000 176,700 129,000 96,500 $603,000 Total At the end of August, both the Vault Bank and Take On Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of services accel Previous Next

Answer 1

Solution:

Journal Entries:

a.  

No.	Account Title and Explanation	Debit ($)	Credit ($)
a.	Work in process	310,500
	Wages payable		310,500
	(To record direct labor costs for the month)

b.)

No.	Account Title and Explanation	Debit ($)	Credit ($)
b.	Work in process	603,000
	Media purchase payable		603,000
	(To record the media purchases for the month)

c.)

No.	Account Title and Explanation	Debit ($)	Credit ($)
c.	Work in process	$301,500 ($603,000 × 50%)
	Project overhead		301,500
	(To record the overhead applied for the month)

d.)

No.	Account Title and Explanation	Debit ($)	Credit ($)
d.	Cost of services	747,650
	Work in process		747,650
	(To record the completion of Vault Bank and Take Off Airlines for the month)

* Total cost of Vault Bank job:

Accumulated costs + direct labor + media purchases + predetermined overhead (50% of media purchases)

$78,400 + $55,000 +$200,800 + $100,400( $200,800 × 50%)

=$434,600

Total cost of Take Off Airlines job:

Accumulated costs + direct labor + media purchases +predetermined overhead (50% of media purchases)

$23,500 + $24,500 + $176,700 + $88,350($176,700 ×50%)

= $313,050

Total cost of completed jobs =$434600 + $313,050

=$747,650