MeadowMeadow Construction, Inc. is a home builder in Arizona. MeadowMeadow uses a job order costing system in which each house is a job. Because it constructs 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 $1,350,000 and total direct labor cost of $3,375,000. The following events occurred during AugustAugust:

.Requirement 1. Calculate MeadowMeadow'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 journal entries.)

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 comma 200$6,200

Date			Accounts	Debit	Credit
d.

e. Other overhead costs incurred: Equipment rentals paid in cash, $35,000;

Worker liability insurance expired, $4,000.

(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 $260,000 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 these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.

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.

Meadow Construction, 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

MORE INFO

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
House 402	$57,000	$42,000
House 403	68,000	34,000
House 404	63,000	55,000
House 405	81,000	51,000

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,

$35,000;

Worker liability insurance expired, $4,000.

f.

Allocated overhead to jobs.

g.

Houses completed: 402, 404

h.

House sold on account: 404 for $ 260,000