Question

Job Order Cost Accounting for a Service Business 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 to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $150 per hour. 10. Reimbursed travel costs to employees for depositions related to the Obsidian case, $12,500. 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. a. Provide the journal entries for each of these transactions. July 3 July 10 July 14 July 18 July 27

Answer 1

A) July 3 Obsidian A/c ..... Dr. $26,250 (175 hr * $150 /hr)

To Service Revenue A/c...........Cr. $26,250

(Being services rendered for 175 hrs@$150/hr)

July 10 Travel expense A/c......Dr. $12,500

To Employee reimbursement A/c......Cr. $12,500

  Employee reimbursement A/c......Dr. $12,500

To Cash A/c.....................................Cr. $12,500

(Being travel expense reimbursed to employees related to Obsidian case)

July 14 Obsidian A/c ..... Dr. $48,100 (260 hr * $185 /hr)

To Service Revenue A/c...........Cr. $48,100

(Being services rendered for 175 hrs @$185/hr)

July 18 Consultancy fees A/c ......Dr. $30,000

To Wadsley and Harden A/c...........Cr. $30,000

(Being consultancy service availed from Wadsley and Harden for Obsidian case)

July 27 Obsidian A/c ......Dr. 26,970 (175 hr + 260 hr)*($62/hr)

To Office Overhead A/c........Cr. $26,970

(Being Office overhead expenses charged for Obsidian case)

July 31 Administrative and support Salary A/c .........Dr. $28,500

To Cash A/c ......... Cr. $28,500

(Being administrative and support salary paid)

July 31 Office supplies A/c .......... Dr. $4,000

To Cash A/c.......... Cr. $4,000

(Being office supplies used for the month)

July 31 Professional salaries A/c .......Dr. $74,350

To Cash A/c ............ Cr. $74,350

(Being professional salaries paid for the month)

July 31 Obsidian A/c ..... Dr. $1,72,500   

To Service Revenue A/c...........Cr. $1,72,500

(Being Obsidian billed for successful defense of the case)

B) Total Expenses directly related to Obsidian case = Travel + Consultancy fees = $(12,500+30,000) = $42,500

Total Office overhead charged = $ 26,970

Under-applied office overhead = $(42,500-26,970) = $15,530

C) Total Cost Charged to Obsidian = $(26,250 + 48,100 + 26,970 + 1,72,500) = $2,73,820

Total expenses incurred related to Obsidian case assuming over/under applied office overhead is closed = $ 26,970

Gross Profit = $(2,73,820 - 26,970) = $ 2,46,850

(Assumed the under applied office overhead is absorbed in cost of services charged $/hr)