Company, Inc. uses a job order costing system in which each house is a job. Because it builds houses, the company uses an account titled Construction Overhead. The company applies overhead based on estimated direct labor costs. For the year, it estimated construction overhead of $1,200,000 and total direct labor cost of $2,400,000.

The following events occurred during

August:

Requirement 1. Calculate Company, Inc's predetermined overhead allocation rate for the year.

				Predetermined overhead
	/		=	allocation rate
	/		=		%

Requirement 2. Prepare journal entries to record the events in the general journal. (Record debits first, then credits. Exclude explanations from any journalentries.)

a. Purchased materials on account, $420,000.

Date			Accounts	Debit	Credit
a.

b. Requisitioned direct materials and used direct labor in construction. Record the materials requisitioned.

Date			Accounts	Debit	Credit
b.

c. The company incurred total wages of $260,000.

Use the data from Item b to assign the wages. (Assume the wages have not been paid.)

Date			Accounts	Debit	Credit
c.

d. Depreciation of construction equipment, $6,200

Date			Accounts	Debit	Credit
d.

e. Other overhead costs incurred: Equipment rentals paid in cash,$38,000; Worker liability insurance expired,$7,000.

(Prepare a single journal entry for this event.)

Date			Accounts	Debit	Credit
e.

f. Allocated overhead to jobs.

Date			Accounts	Debit	Credit
f.

g. Houses completed: 402, 404

Date			Accounts	Debit	Credit
g.

h. House sold on account: 404 for $230,000

Begin by recording the revenue from the sale on account. Do not record the expense related to the sale in this journal entry. We will do that in the next step.

Date			Accounts	Debit	Credit
h.

Now record the cost of goods sold from the sale of house 404.

Date			Accounts	Debit	Credit
h.

Requirement 3. T-accounts for Work-in-Process Inventory and Finished Goods Inventory have been opened for you. Post the appropriate entries to theseaccounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.

Use the journal entries you prepared above.

Work-in-Process Inventory

Finished Goods Inventory

Requirement 4. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work-in-Process Inventory account.

, Company Inc.
Reconciliation of Work-in-Process Inventory Subsidiary
and Control Accounts
				Total WIP Balance
Unfinished houses:
	Direct Materials
	Direct Labor
	Construction Overhead
	Total cost equals Ending WIP Inventory

Requirement 5. Add the costs of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory.

Company, Inc.
Reconciliation of Finished Goods Inventory Subsidiary
and Control Accounts
Completed, unsold house:
	Direct Materials
	Direct Labor
	Construction Overhead
	Total cost equals Ending Finished Goods Inventory

Requirement 6. Compute gross profit on the house that was sold. What costs must gross profit cover for the company?

Company, Inc.
Gross profit on Homes Sold In August
Gross profit

What costs must gross profit cover for the company?

The gross profit must cover these types of costs:

a. Purchased materials on account, $420,000 b. Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned. Direct Materials Direct Labor 49,000 House 402 $ 54,000 S 33,000 House 403 69,000 House 404 68,000 58,000 House 405 81,000 57,000 c. The company incurred total wages of $260,000. Use the data from Item b to assign the wages. Wages are not yet paid. d. Depreciation of construction equipment, $6,200 e. Other overhead costs incurred: Equipment rentals paid in cash, $38,000; Worker liability insurance expired, $7,000 f. Allocated overhead to jobs. g. Houses completed: 402, 404 h. House sold on account: 404 for $230,000