Steinborn Construction, Inc., is a home builder in New Mexico.

Steinborn uses a job order costing system in which each house is a job. Because it constructs houses, the company uses accounts titled Construction Wages and Construction Overhead. The following events occurred during August:

a. Purchased materials on account, $480,000.

b. Incurred construction wages of $220,000. Requisitioned direct mate- rials and used direct labor in construction:

c. Depreciation of construction equipment, $6,400.

d. Other construction overhead costs incurred on houses 402 through 405:

e. Allocated overhead to jobs at the predetermined overhead rate of 40% of direct labor cost.

f. Houses completed: 402, 404.

g. House sold: 404 for $200,000.

Requirements 

1. Record the events in the general journal,

2. Open T-accounts for Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.

3. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work in Process Inventory account,

4. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory,

5. Compute gross profit on the house that was sold. What costs must gross profit cover for Steinborn Construction?

Transcribed Image Text:

Direct Materials Direct Labor House 402 $58,000 $42,000 House 403. 69,000 33,000 House 404 68,000 50,000 House 405 85,000 53,000