Question

Your company assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2021, your company budgets 2022 assembly-support costs to be $8,800,000 and 2022 direct labor-hours to be 220,000.

The following information pertains to two of your company’s jobs that were started and completed in 2022 for customer “Thunder Lope.”

Project 2022-01  , Project 2022-02

Direct Materials costs$106,550, $127,450

Direct Labor Costs $36,250 , $41,130

Direct Labor Hours 970 hours, 1,000 hours

Sales Price$250,000, $280,000

Assume the following:

1.The company uses normal costing,

2.Direct materials and direct labor are paid for on a contract basis.

3.All expenses, including overhead, can be entered via summary journal entries dated at the end of the year.

4.All job-related costs can be entered directly into the cost of goods sold account since the jobs are completed and sold.

Go to QuickBooks and login to your company. Click the “+ New” button at the upper left-hand corner of the screen. Under the “Other” column, choose “Journal Entry.” Using the information above, enter the revenues, direct materials, direct labor, and overhead costs via summary journal entry in QuickBooks. Be sure to date your entry 12/31/2022, and to identify the project that the sales and cost of goods sold are related to. Do not enter a project name for the cash received from sales, cash paid for direct materials and direct labor, or for the Manufacturing Overhead Applied.

For each project, you will need to enter the following:

12/31/22 Cash (project sales price)

Sales Revenue  (at sales price, identify project #)

12/31/22 Cost of Goods Sold (total project cost, identify project #)

Cash (cost of DM & DL for project)

Manufacturing Overhead Applied(calculate based on info above)

Answer 1

Since the company assembles residential houses and consists of three parts of costs: 1. Direct material, 2. Direct Labour 3. Allocated support costs. Direct material and labour costs are provided in the question. However, the support cost to be allocated should be calculated.

Support cost to be allocated based on the budgeted direct labour hours for the year

= budgeted support cost/ budgeted labour hours = $8,800,000/220,000 = $40 per hour

Therefore cost of the projects:

Particulars	Project 2022-01	Project 2022-02
Direct Material costs	106550	127450
Direct Labour costs	36250	41130
Allocated Support cost	38800	40000
The calculation for support cost	970 hours * 40	1000 hours * 40
Total Costs A	181600	208580
Sales Price B	250000	280000

Date	Particulars	Debit in $	Credit in $
December 31, 2022	Cash (project sales price)	530000
December 31, 2022	Sales Revenue (at sales price, project 2022-01)		250000
December 31, 2022	Sales Revenue (at sales price, project 2022-02)		280000
December 31, 2022	Cost of Goods Sold (total project cost, project 2022-01))	181600
December 31, 2022	Cost of Goods Sold (total project cost, project 2022-02))	208580
December 31, 2022	Accounts Payable (cost of DM & DL for the project)		311380
December 31, 2022	Manufacturing Overhead Applied (calculated based on the info above)		78800