Question

countitled Construction Overhead The mated direct labor cost for the year, it estimated $1,150,000 and total direct labor costs of $5.750.000 T during Augusti .. Purchased materiale on account, $400.000 Requisitioned direct material and directe the materiale regioned head. The company applies mated construction 0.000. The following events direct labor in construction. Recorded Direct Labor 3. Hou 402 House 403 House 404 House 405 Direct Materials $50,000 62,000 61,000 86,000 $ 44,000 32.000 S8,000 57.000 c. The company incurred total wages of $300.000. Use the data from them to assign the wages. Wages are not yet paid. d. Depreciation of construction equipment, 56,700. e. Other overhead costs incurred: Fau r entals paldin cash, $30,000; Worker liability Insurance expired, $7,000. 1. Allocated overhead to jobs. 8. Houses completed: 402, 404 h. House sold on account: 404 for $250,000 Requirements 1. Calculate Superior'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. WIP Bal. $254,800 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 costs 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 Superior Construction?

Answer 1

1. Predetermined overhead rate = Estimated construction overhead/Estimated direct labor costs = $1150000/$5750000 = 20% of direct labor cost

2.

No	Account Titles and Explanation	Debit	Credit
a.	Materials inventory	400000
	Accounts payable		400000
	(To record materials purchased on account)
b.	Work in process inventory	267000
	Materials inventory		267000
	(To record materials requisitioned)
c.	Work in process inventory	191000
	Construction overhead	109000
	Wages payable		300000
	(To record total wages incurred)
d.	Construction overhead	6700
	Accumulated depreciation-equipment		6700
	(To record depreciation on construction equipment)
e.	Construction overhead	37000
	Cash		30000
	Prepaid insurance		7000
	(To record other overhead costs incurred)
f.	Work in process inventory (20% x $191000)	38200
	Construction overhead		38200
	(To record overhead allocated to jobs)
g.	Finished goods inventory ($110800 + 130600)	241400
	Work in process inventory		241400
	(To record jobs completed)
h(1)	Accounts receivable	250000
	Sales revenue		250000
	(To record sales on account)
h(2)	Cost of goods sold	130600
	Finished goods inventory		130600
	(To record the cost of jobs sold)

Working:

	House 402	House 403	House 404	House 405	Total
Direct materials	58000	62000	61000	86000	267000
Direct labor	44000	32000	58000	57000	191000
Overhead	8800	6400	11600	11400	38200
Total job cost $	110800	100400	130600	154400	496200

3.

Work in Process Inventory
Beg. Bal.	0
b.	267000	241400	g.
c.	191000
f.	38200
End. Bal.	254800
Finished Goods Inventory
Beg. Bal.	0
g.	241400	130600	h(2)
End. Bal.	110800

4.

Work in process inventory:
House 403	100400
House 405	154400
Total $	254800
Balance $	254800

5.

Finished goods inventory:
House 402	110800
Balance $	110800

6.

Sales revenue	250000
Less: Cost of goods sold	130600
Gross profit $	119400

The gross profit must cover the selling, general, and administrative expenses for Superior Construction to generate a net income.