Question

MeadowMeadow Construction, Inc. is a home builder in Arizona. MeadowMeadow 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 $1,350,000 and total direct labor cost of $3,375,000. The following events occurred during AugustAugust​:

.Requirement 1. Calculate MeadowMeadow​'s predetermined overhead allocation rate for the year.

				Predetermined overhead
	/		=	allocation rate
	/		=		%

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, $420,000.

Date			Accounts	Debit	Credit
a.

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

Date			Accounts	Debit	Credit
b.

c. The company incurred total wages of $260,000.

Use the data from Item b to assign the wages. ​(Assume the wages have not been​ paid.)

Date			Accounts	Debit	Credit
c.

d. Depreciation of construction​ equipment, $ 6 comma 200$6,200

Date			Accounts	Debit	Credit
d.

e. Other overhead costs​ incurred: Equipment rentals paid in​ cash, $35,000​;

Worker liability insurance​ expired, $4,000.

​(Prepare a single journal entry for this​ event.)

Date			Accounts	Debit	Credit
e.

f. Allocated overhead to jobs.

Date			Accounts	Debit	Credit
f.

g. Houses​ completed: 402, 404

Date			Accounts	Debit	Credit
g.

h. House sold on​ account: 404 $260,000 Begin by recording the revenue from the sale on account. Do not record the expense related to the sale in this journal entry. We will do that in the next step.

Date			Accounts	Debit	Credit
h.

Now record the cost of goods sold from the sale of house 404.

Date			Accounts	Debit	Credit
h.

Requirement 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.

Work-in-Process Inventory

Finished Goods Inventory

Requirement 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.

Meadow Construction, Inc.
Reconciliation of Work-in-Process Inventory Subsidiary
and Control Accounts
				Total WIP Balance
Unfinished houses:
	Direct Materials
	Direct Labor
	Construction Overhead
	Total cost equals Ending WIP Inventory

MORE INFO

a.	Purchased materials on​ account, $420,000
b.	Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned.
	Direct Materials Direct Labor House 402 $57,000 $42,000 House 403 68,000 34,000 House 404 63,000 55,000 House 405 81,000 51,000
c.	The company incurred total wages of $260,000. Use the data from Item b to assign the wages. Wages are not yet paid.
d.	Depreciation of construction​ equipment, $6,200
e.	Other overhead costs​ incurred: Equipment rentals paid in​ cash, $35,000​; Worker liability insurance​ expired, $4,000.
f.	Allocated overhead to jobs.
g.	Houses​ completed: 402, 404
h.	House sold on​ account: 404 for $ 260,000

Answer 1

Predetermined overhead allocation rate = Estimated total construction overhead / Estimated direct labor costs

Predetermined overhead allocation rate = $1,350,000 / $3,375,000 * 100 = 40%

2.

	Accounts	Debit	Credit
a	Raw material	$420,000
	Accounts payable		$420,000
b	Work in process	$269,000
	Raw material inventory		$269,000
c	Wages expense	$260,000
	Wages payable		$260,000
d	Construction overhead	$6,200
	Accumulated depreciation-Construction equipment		$6,200
e	Construction overhead	$39,000
	Cash		$35,000
	Prepaid insurance		4,000
f	Work in process	$72,800
	Construction overhead ($182,000*40%)		$72,800
g	Finished goods ($115,800+140,000)	$255,800
	Work in process		$255,800
h	Accounts receivable	$260,000
	Sales		$260,000
h	Cost of goods sold	$140,000
	Finished goods		$140,000

	Job 402	Job 404
Direct material	$57,000	$63,000
Direct labor	42,000	55,000
Construction overhead	16,800 (42,000*40%)	22,000 (55,000*40%)
Total costs	$115,800	$140,000

3.

Work in process inventory				Finished goods inventory
Beg.bal	$0			Beg.bal	$0
b	269,000	$255,800	g	g	255,800	$140,000	h
b	182,000
f	72,800
End.bal	$268,000			End.bal	$115,800

4.

Meadow Construction Inc. Reconciliation of Work in Process Inventory Subsidiary and Control Accounts
			Total WIP Balance
Unfinished houses:	Job 403	Job 405
Direct material	$68,000	$81,000
Direct labor	34,000	51,000
Construction overhead	13,600	20,400
Total cost equals ending WIP inventory	$115,600	$152,400	$268,000