Question

1.

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 430 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $210 per hour.
10.	Reimbursed travel costs to employees for depositions related to the Obsidian case, $25,900.
14.	Charged 140 hours of professional time for the Obsidian trial at a rate of $290 per hour.
18.	Received invoice from consultants Wadsley and Harden for $60,700 for expert testimony related to the Obsidian trial.
27.	Applied office overhead at a rate of $70 per professional hour charged to the Obsidian case.
31.	Paid administrative and support salaries of $28,300 for the month.
31.	Used office supplies for the month, $9,600.
31.	Paid professional salaries of $190,400 for the month.
31.	Billed Obsidian $293,700 for successful defense of the case.

a. Provide the journal entries for each of these transactions. If an amount box does not require an entry, leave it blank.

July 3 July 10 Work in Process Cash July 14 Work in Process Salaries Payable July 18 Work in Process Consultant Fees Payable July 27 Work in Process Office Overhead July 31 Admin. sal. Office Overhead Cash July 31 Supplies Office Overhead Supplies July 31 Prof. sal. Salaries Payable Cash July 31 Billed Accounts Receivable Fees Earned July 31 Cost Cost of Services Work in Process

b. How much office overhead is over- or underapplied? Enter your answer as a positive number.

c. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.\

2. 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 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 60% of media purchases.

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

	August 1 Balances
Vault Bank	$76,700
Take Off Airlines	23,000
Sleepy Tired Hotels	53,700
Tastee Beverages	33,000
Total	$186,400

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	$53,300		$205,500
Take Off Airlines	23,800		180,800
Sleepy Tired Hotels	104,900		132,000
Tastee Beverages	119,400		98,700
Total	$301,400		$617,000

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.

a. Journalize the summary entry to record the direct labor costs for the month. If an amount box does not require an entry, leave it blank.

a.

b. Journalize the summary entry to record the media purchases for the month. If an amount box does not require an entry, leave it blank.

b.

c. Journalize the summary entry to record the overhead applied for the month. If an amount box does not require an entry, leave it blank.

c.

d. Journalize the summary entry to record the completion of Vault Bank and Take Off Airlines for the month. If an amount box does not require an entry, leave it blank.

d.

Answer 1

Date	General Journal				Debit	Credit
3-Jul	Work in process				90300
	Salaries payable					90,300
10-Jul	Work in process				25,900
	cash					25,900
14-Jul	Work in process				40600
	Salaries payable					40,600
18-Jul	work in process				60,700
	Consultant fees payable					60,700
27-Jul	Work in process				39900
	office overhead					39,900
31-Jul	office overhead				28,300
	Cash					28,300
31-Jul	office overhead				9,600
	Supplies					9,600
31-Jul	Salaries payable				190,400
	cash					190,400
31-Jul	Accounts receivable				293,700
	Fees earned					293,700
31-Jul	Cost of services				257,400
	work in process					249,000
b)	office overhead over applied				2,000
c)	Gross profit				38,300
	(293700 - (257400-2000)