The Fly Company provides advertising services for clients across the nation. The Fly Company is...
Question:
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
Totals
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:
from
Chapter 5 / Lesson 9The 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.