Sturdy

Construction, Inc. is a home builder in Arizona.

Sturdy

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 $1,300,000 and total direct labor cost of $3,250,000. The following events occurred during August:

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a. Purchased materials on account, $410,000

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

	Direct Materials	Direct Labor
House 402	$55,000	$45,000
House 403	63,000	34,000
House 404	61,000	58,000
House 405	87,000	57,000

c. The company incurred total wages of $280,000. Use the data from Item b to assign the wages. Wages are not yet paid.

d. Depreciation of construction equipment, $6,000

e. Other overhead costs incurred: Equipment rentals paid in cash, $36,000; Worker liability insurance expired, $5,000.

f. Allocated overhead to jobs.

g. Houses completed: 402, 404

h. House sold on account: 404 for $260,000

Requirements

1.	Calculate Sturdy's predetermined overhead allocation rate for the year.
2.	Prepare journal entries to record the events in the general journal.
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.
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.
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.
6.	Compute gross profit on the house that was sold. What costs must gross profit cover for Sturdy Construction?

Question content area bottom

Part 1

Requirement 1. Calculate

Sturdy's

predetermined overhead allocation rate for the year.

				Predetermined overhead
Estimated overhead cost		Estimated direct labor cost	=	allocation rate
$1,300,000		$3,250,000	=	40	%

Part 2

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,

$410,000.

Date			Accounts	Debit	Credit
a.			Raw Materials Inventory	410,000
			Accounts Payable		410,000

Part 3

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

Date			Accounts	Debit	Credit
b.			Work-in-Process Inventory
			Raw Materials Inventory