The Fly Company provides advertising services for clients across the nation. The Fly Company is...


The Fly Company provides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The Fly Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 65% of media purchases. On August 1, the four advertising projects had the following accumulated costs

August 1 Balances

Vault Bank $270,000

Take Off Airlines 80,000

Sleepy Tired Hotels 210,000

Tastee Beverages 115,000

Total $675,000

During August, The Fly Company incurred the following direct labor and media purchase costs related to preparing advertising for each of the four accounts:

Vault Bank

Direct Labor $190,000

Media Purchases $710,000

Take Off Airlines

Direct Labor $85,000

Media Purchases $625,000

Sleepy Tired Hotels

Direct Labor $372,000

Media Purchases $455,000

Tastee Beverages

Direct Labor $421,000

Media Purchases $340,000


Direct Labor $1,068,000

Media Purchases $2,130,000

At the end of August, both the Vault Bank and Take Off Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of services account.

Required: Journalize the four summary entries on August 31 to record each of the following for the month.

Job-Order Cost System

Job-order costing system can be applied to both manufacturing and service companies. Service companies who use a job-order costing system provide services that are customized in accordance to customer requirements and hence each service is different to the other. Examples include accounting services, legal services and financial advisory services. The job-cost sheet for service companies will typically include direct labor costs and overhead with minimal amounts of direct materials.

Answer and Explanation: 1

DR Work in Process 1,068,000
CR Wages Payable 1,068,000
(To record direct labor costs incurred)


DR Work in Process 2,132,000
CR Media Purchases Payable 2,130,000
(To record media purchases for jobs)


DR Work in Process 1,384,500 (65% x 2,130,000)
CR Project Overhead 1,384,500
(To record applied overhead to jobs)


Total cost of Vault Bank job = 270,000 + 190,000 + 710,000 + (65% x 710,000) = 1,631,500

Total cost of Take Off Airlines job = 80,000 + 85,000 + 625,000 + (65% x 625,000) = 1,196,250

Total cost of completed jobs = 1,631,500 + 1,196,250 = 2,827,750

DR Cost of Services 2,827,750
CR Work in Process 2,827,750
(To record the completion of Vault Bank and Take Off Airlines jobs)

Learn more about this topic:

Job Order Cost System for Service Companies


Chapter 5 / Lesson 9

The job order cost system is a way for service companies to assign costs since they do not sell physical products. Study the differences between manufacturing and service, and learn about the job order costing system through an example.

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