Lincoln Construction Company builds bridges. In October and November 2010, the firm worked exclusively on a bridge spanning the Calamus River in northern Nebraska. Lincoln Construction’s Precast Department builds structural elements of the bridges in temporary plants located near the construction sites. The Construction Department operates at the bridge site and assembles the precast structural elements. Estimated costs for the Calamus River bridge for the Precast Department were $1,550,000 for direct material, $220,000 for direct labor, and $275,000 for overhead. For the Construction Department, estimated costs for the Calamus River bridge were $350,000 for direct material, $130,000 for direct labor, and $214,500 for overhead. Overhead is applied on the last day of each month. Overhead application rates for the Precast and Construction departments are $25 per machine hour and 165 percent of direct labor cost, respectively.

TRANSACTIONS FOR OCTOBER

1 Purchased $1,150,000 of material (on account) for the Precast Department to begin building structural elements. All of the material was issued to production; of the issuances, $650,000 was considered direct.

5 Installed utilities at the bridge site at a total cost of $25,000. This amount will be paid at a later date.

8 Paid rent for the temporary construction site housing the Precast Department, $5,000.

15 Completed bridge support pillars by the Precast Department and transferred to the construction site.

20 Paid machine rental expense of $60,000 incurred by the Construction Department for clearing the bridge site and digging foundations for bridge supports.

24 Purchased additional material costing $1,485,000 on account.

31 Paid the following bills for the Precast Department: utilities, $7,000; direct labor, $45,000; insurance, $6,220; and supervision and other indirect labor costs, $7,900. Departmental depreciation was recorded, $15,200. The company also paid bills for the Construction Department: utilities, $2,300; direct labor, $16,300; indirect labor, $5,700; and insurance, $1,900. Departmental depreciation was recorded on equipment, $8,750.

31 Issued a check to pay for the material purchased on October 1 and October 24.

31 Applied overhead to production in each department; 6,000 machine hours were worked in the Precast Department in October.

TRANSACTIONS FOR NOVEMBER

1 Transferred additional structural elements from the Precast Department to the construction site. The Construction Department incurred a cash cost of $5,000 to rent a crane.

4 Issued $1,000,000 of material to the Precast Department. Of this amount, $825,000 was considered direct.

8 Paid rent of $5,000 in cash for the temporary site occupied by the Precast Department.

15 Issued $425,000 of material to the Construction Department. Of this amount, $200,000 was considered direct.

18 Transferred additional structural elements from the Precast Department to the construction site.

24 Transferred the final batch of structural elements from the Precast Department to the construction site.

29 Completed the bridge.

30 Paid final bills for the month in the Precast Department: utilities, $15,000; direct labor, $115,000; insurance, $9,350; and supervision and other indirect labor costs, $14,500. Depreciation was recorded, $15,200. The company also paid bills for the Construction Department: utilities, $4,900; direct labor, $134,300; indirect labor, $15,200; and insurance, $5,400. Depreciation was recorded on equipment, $18,350.

30 Applied overhead in each department. The Precast Department recorded 3,950 machine hours in November.

30 Billed the state of Nebraska for the completed bridge at the contract price of $3,450,000.

a. Journalize the entries for the preceding transactions. For purposes of this problem, it is not necessary to transfer direct material and direct labor from one department to the other.

b. Post all entries to T-accounts.

c. Prepare a job order cost sheet, which includes estimated costs, for the construction of the bridge.

d. Discuss Lincoln Construction Company’s estimates relative to its actual costs.