Sunset Construction, Inc. Is a home builder in Arizona. Sunset uses a job order costing system in which each house is a job. Because it constructs houses, the company uses an account title Construction Overhead. The company applies overhead based on estimated direct labor costs. For the year, it estimated construction overhead of $1,250,000 and total direct labor costs of $2,500,000. The following events occurred during August:

a. Purchased material on account $440,000

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

Direct Materials Direct Labor

House 402 $56,000 $41,000

House 403 $65,000 $35,000

House 404 $62,000 $57,000

House 405 $84,000 $55,000

c. The company incurred total wages of $210,000. Use the data from item B to assign the wages. Wages are not yet paid.

d. Depreciation of construction equipment$6,800

e. Other overhead costs incurred: Equipment rentals paid in cash, $34,000; Worker liability insurance expired, $6,000

f. Allocated overhead to jobs.

g. Houses completed 402, 404

h. House sold on account 404 for $220,000

Requirement:

1. Calculate Sunsets predetermined overhead allocation rate for the year.

2. Prepare journal entries to record the events in the general journal.

3. Open T accounts for WIP Inventory and FG Inventory. Post the appropriate entries to these accounts, identify each entry by letter. Determine the ending account balance, assuming that the beginning balances were zero.

4. Add the costs of the unfished houses and show that this total amount equals the ending balance in the WIP 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 Summerset construction?