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ABC Company is a painting contractor and uses a job order costing system. On December 1,...

ABC Company is a painting contractor and uses a job order costing system. On December 1, 2019, the Company purchased 10 gallons of paint at $125 per gallon for inventory. On December 10, the Company signed a contract for a residential painting job for $8,000 (Job 100). The Company used 8 gallons of paint on the job. The painters worked for 90 hours at an hourly rate of $15 per hour. ABC Company estimated annual overhead costs (paintbrushes, rollers, drop paper, etc.) of $500,000 and total direct labor hours of 20,000 hours. The job was completed on December 20 and the customer was billed for $8,000. (Note: T-accounts may be used as an alternative or in addition to journal entries.)

  1. Journalize the entry to record the purchase of the paint.
  1. Journalize the entries to record (1) the transfer of the paint, (2) the application of direct labor, and (3) the application of company overhead to job 100.
  1. Journalize the completion of Job 100.
  1. Journalize the billing and cost recognition of Job 100
  1. How much was the gross profit on Job 100?

Solutions

Expert Solution

a) The entry to record the purchase of the paint is:-

Particular Debit Credit
Purchases A/c $      1,250
Cash/ Accounts payable $          1,250
10 gallons of paint purchased @$125

b) The entries to record (1) the transfer of the paint, (2) the application of direct labor, and (3) the application of company overhead to job 100 are:-

Particular Debit Credit
Job 100 A/c $1000
Purchases $1000
8 gallons transferred to Job 100
Job 100 a/c $1350
Direct Labour Cost $1350
90 hours @$15 labour cost allocated to Job 100
Job 100 a/c $2250
Company overhead cost $2250
Company overhead cost allocated to Job 100

Company overhead cost = $500000/20000hours*90 hours = 2250

c)Journalizing the completion of Job 100

Particular Debit Credit
Job 100 $4600
Work in progress $4600
(WIP of paint, labour and factory overhead transferred to finished Job)

d) Journalizing the billing and cost recognition of Job 100

Particular Debit Credit
Job 100 a/c $         8,000
Purchases $        1,000
Direct Labour cost $        1,350
Factory overhead cost $        2,250
Profit on Contract $        3,400
(Cost and profit recognised on contract)

e) Gross profit on Job 100 is $3400

ekkarill92 answered 1 year ago
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