Widget Construction, Inc., is a home builder in New Mexico.Widget uses a job order costing system in which each house is a job.Because it constructs houses, the company uses accounts titled Construction wages and Construction overhead.The following events occurred during August:

a. Purchased Materials on account $470,000

b. Incurred Contrstucion wages of $230,000.Requisitioned direct materials and used direct labor in construction:

Direct Materials Direct Labor

House 402 $58,000 $40,000

House 403 $63,000 $34,000 $177,000

House 404 $60,000 $52,000 $221,000

House 405 $89,000 $51,000

c. Deprectaion of construction equipment $6,800

d. Other overhead costs incurred on houses 402 through 405.

Indirect Labor $44,000

Equipment rentals in cash $33,000

Worker liability insurance expired $7,000

e. Allocated overhead to jobs at the predetermined rate of 40% of direct labor cost

f. Houses completed 402 and 404

g. House 404 Sold for $220,000

Deliverables

1. Record the events in the general journal

2. Post the appropriate entries to the T-accounts, identifying each entry by letter.Determine the ending account balances, assuming that the beginning balances were zero.

3. Add the costs of the unfinished houses, and show that this total amount equals the ending balances in the Work in process inventory account.

4. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished goods inventory.

5. Compute gross profit on the house that was sold.What costs must gross profit cover for Sherborn Construction?

Deliverable 1

Record the events in the general journal.Start with the entry from event (a). Journal Entry Date Accounts Debit Credit

a. Event (b) has two journal entries to record.First record the construction wages.

Journal Entry Date Accounts Debit Credit

b. Now record the requisitioned direct materials and direct labor used.

Journal Entry Date Accounts Debit Credit

b. Next record the depreciation of construction equipment, $6,800.

Journal Entry Date Accounts Debit Credit

c. Record the overhead costs incurred on houses 402 through 405.

Journal Entry Date Accounts Debit Credit

d. Record the allocated overhead to jobs at the predetermined rate of 40% of direct labor cost. Journal Entry Date Accounts Debit Credit

e. Record the completed houses 402 and 404 in event (f).

Journal Entry Date Accounts Debit Credit

f. Begin by recording the revenue from the sale of house 404.

Journal Entry Date Accounts Debit Credit

g. Next record the cost of goods sold from the sale of house 404.

Journal Entry Date Accounts Debit Credit

g.

Deliverable 2

Post the appropriate entries to the Work in process inventory and Finished goods inventory T-accounts.Identify each entry by letter and determine the ending account balances. The sharded area is for the letter.

Work in process inventory

(b) (f) (e)

Bal.

Finished goods inventory

(f) (g)

Bal. -

Deliverable 3

Show how the costs of the unfinished houses equals the ending balance in Work in process inventory.

Widget Construction, Inc.

Reconciliation of Work in process inventory Subsidiary

and Control Accounts

House #403 House #405 Total WIP Balance

Unfinished houses:

Direct materials

Direct labor

Manufac. overhead -40% of labor

Total costs = Work in Process

Deliverable 4

Show how the costs of the completed houses equals the ending balance in Finished goods inventory.

Widget Construction, Inc.

Reconciliation of Finished goods inventory Subsidiary

and Control Accounts

House#402 Total Finished Goods Bal.

Completed, unsold house:

Direct materials

Direct labor

Manufac. overhead -40% of labor

Total cost = Finished Goods bal.

Deliverable 5

Compute the gross profit for the house that was sold.

Widget Construction, Inc.

Gross profit on Homes Sold in August

House #404

Sales revenue

Less: Cost of goods sold

Gross profit

The gross profit must cover these types of costs:

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