Job order cost accounting for a service company

The Fly Company provides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The Fly Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The The rate used to apply factory overhead costs to the goods manufactured. The rate is determined by dividing the budgeted overhead cost by the estimated activity usage at the beginning of the fiscal period.predetermined overhead rate is 40% of media purchases.

On August 1, the four advertising projects had the following accumulated costs:

	August 1 Balances
Vault Bank	$64,600
Take Off Airlines	19,400
Sleepy Tired Hotels	45,200
Tastee Beverages	27,800
Total	$157,000

During August, The Fly Company incurred the following direct labor and media purchase costs related to preparing advertising for each of the four accounts:

	Direct Labor		Media Purchases
Vault Bank	$42,900		$168,200
Take Off Airlines	19,100		148,000
Sleepy Tired Hotels	84,300		108,100
Tastee Beverages	96,000		80,700
Total	$242,300		$505,000

At the end of August, both the Vault Bank and Take Off Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of services account.

a. Journalize the summary entry to record the direct labor costs for the month.

a.	Work in Process Accounts Payable Agency Overhead Cash Cost of Services Salaries Payable Work in Process
	Salaries Payable Accounts Payable Cash Cost of Services Materials Salaries Payable Work in Process

Feedback

a. Increase the work in process for the direct costs and the applied overhead. Applied overhead should be based on media purchases. Transfer the cost of completed jobs out of work-in-process and into the cost of services account.

b. Journalize the summary entry to record the media purchases for the month.

b.	Work in Process Accounts Payable Agency Overhead Cash Cost of Services Salaries Payable Work in Process
	Accounts Payable Accounts Payable Agency Overhead Cost of Services Materials Salaries Payable Work in Process

Feedback

b. Increase the work in process for the direct costs and the applied overhead. Applied overhead should be based on media purchases. Transfer the cost of completed jobs out of work-in-process and into the cost of services account.

c. Journalize the summary entry to record the overhead applied for the month.

c.	Work in Process Accounts Payable Agency Overhead Cash Cost of Services Finished Goods Work in Process
	Agency Overhead Accounts Payable Agency Overhead Cash Cost of Services Finished Goods Work in Process

Feedback

c. Increase the work in process for the direct costs and the applied overhead. Applied overhead should be based on media purchases. Transfer the cost of completed jobs out of work-in-process and into the cost of services account.

d. Journalize the summary entry to record the completion of Vault Bank and Take Off Airlines for the month.

d.	Cost of Services Accounts Payable Accounts Receivable Cash Cost of Services Materials Work in Process
	Work in Process Accounts Payable Accounts Receivable Agency Overhead Cash Cost of Services Work in Process