Question

TechMaster is an information technology (IT) consulting company offering services to small firms. TechMaster bills clients for its various services based on the hours its professionals spend. In August, IT professionals billed 885 hours to clients and worked a total of 940 hours (the difference includes time for training, preparing bids, and so on, which are considered administrative costs). TechMaster bills clients at the rate of $220 per hour; labor cost for its IT professionals is $85 per hour. Overhead costs in August totaled $37.000. Overhead is applied to clients at $47 per labor-hour. In addition, Tech Master had $57,000 in marketing and administrative costs (including labor time as described above). All transactions are on account. All services were billed. Transaction Description Record Labor cost Record Applied Service Overhead Record Cost of services billed Record Actual Service Overhead (c) Required: a. Show labor and overhead cost flows through T-accounts. Wages Payable Work-In-Process Beg, bal Beg. bal. End, bal. End. bal. Cost of Services Billed Service Overhead Control Beg. bal. Beg. bal. End. bal. 0 End. bal. 0 Applied Service O.H. Beg. bal. End. bal. 0

Answer 1

Wages Payable $85*885 =$75225
Wages Payable
		opening Balance
Ending bal.	75225	Work in progress	75225
Work­ In­ Process= $47*875
Work­ In­ Process
Wages payable	75225	Cost of services billed	116350
Applied Service O.H	41125
Cost of services billed =41125-37000 = 4125
Cost of services billed
Work in progress	116350	Service OH control	4125
		Closing Balance	112225
Service Overhead control
Cost of services billed	37000	Closing balance	37000
Applied Service Overhead
Cost of service billed	41125	Work in progress	41125

TechMaster
Income statement
For the month ending August 31
Particulars		Amount
Sales ($220*885)		$194,700
Cost of service billed	116350
Less:Over applied service Overhead	-4125	$112,225
Gross margin		$82,475
marketing and administrative costs		$57,000
Operating Profit		$25,475