PROBLEM 2-19B Applying Overhead in a Service Company Journal Entries (LO4, LO5, LO8)

CHECK FIGURE

(3) Balance in WIP: $4,350

Misty Landscaping uses a job-order costing system to track the costs of its landscaping projects. The company provides garden design and installation services for its clients. The table below provides data concerning the three landscaping projects that were in progress during April. There was no work in process at the beginning of April.

		Project
		Mullen	Chu	Johnson
	Designer-hours...................	60	45	25
	Direct materials cost.........	$2,600	$1,900	$1,100
	Direct labor cost................	$5,000	$4,700	$2,000

Actual overhead costs were $7,000 for April. Overhead costs are applied to projects on the basis of designer-hours since most of the overhead is related to the costs of the garden design studio. The predetermined overhead rate is $50 per designer-hour. The Mullen and Chu projects were completed in April; the Johnson project was not completed by the end of the month.

Required:

1. Compute the amount of overhead cost that would have been charged to each project during April.

2. Prepare a journal entry showing the completion of the Mullen and Chu projects and the transfer of costs to the Completed Projects (i.e., Finished Goods) account.

3. What is the balance in the Work in Process account at the end of the month?

4. What is the balance in the Overhead account at the end of the month? What is this balance called?

1.		Mullen	Chu	Johnson
	Designer-hours...........................................................................
	x Predetermined overhead rate..............................................
	= Manufacturing overhead applied.......................................

2.		Mullen	Chu
	Direct materials.......................................
	+ Direct labor...........................................
	+ Overhead applied................................
	= Total cost..............................................

	JOURNAL ENTRY Completed Projects ............................................................................
	Work in Process.........................................................................

3. The balance in the Work in Process account will consist of the costs associated with the Johnson project:

	Direct materials........................................................
	+ Direct labor............................................................
	+ Overhead applied.................................................
	= Total cost in work in process..............................

4. The balance in the Overhead account can be determined as follows:

Overhead
Actual overhead costs		Applied overhead costs
Account balance