Question

Job Order Cost Accounting for a Service Company

The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July:

July 3.Charged 570 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $220 per hour.

10.Reimbursed travel costs to employees for depositions related to the Obsidian case, $24,300.

14.Charged 210 hours of professional time for the Obsidian trial at a rate of $260 per hour.

18.Received invoice from consultants Wadsley and Harden for $75,200 for expert testimony related to the Obsidian trial.

27.Applied office overhead at a rate of $70 per professional hour charged to the Obsidian case.

31.Paid administrative and support salaries of $38,800 for the month.

31.Used office supplies for the month, $13,100.

31.Paid professional salaries of $163,100 for the month.

31.Billed Obsidian $381,100 for successful defense of the case.

a. Provide the journal entries for each of these transactions. If an amount box does not require an entry, leave it blank.

July 3Work in Process

Salaries Payable

July 10Work in Process

Cash

July 14Work in Process

Salaries Payable

July 18Work in Process

Consultant Fees Payable

July 27Work in Process

Office Overhead

July 31 Admin. sal.Office Overhead

Cash

July 31 SuppliesOffice Overhead

Supplies

July 31 Prof. sal.Salaries Payable

Cash

July 31 BilledAccounts Receivable

Fees Earned

July 31 CostCost of Services

Work in Process

Feedback

a. Record the direct costs in Work in Process.
Apply the overhead based on professional hours.
Record actual overhead in the Office Overhead account. For cases completed, move the costs from Work in Process to Cost of Services.

b. How much office overhead is over- or underapplied? Enter your answer as a positive number.
$  

c. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.
$

Answer 1

a.

July	3	Work in Process(570hrs.×$220)	125400
		Salaries Payable		125400
	10	Work in Process	24300
		Cash		24300
	14	Work in Process(210hrs.×$260)	54600
		Salaries Payable		54600
	18	Work in Process	75200
		Consultant Fees Payable		75200
	27	Work in Process(780hrs.×$70)	54600
		Office Overhead		54600
	31	Office Overhead	38800
		Cash		38800
	31	Office Overhead	13100
		Supplies		13100
	31	Salaries Payable	163100
		Cash		163100
	31	Accounts Receivable	381100
		Fees Earned		381100
	31	Cost of Services	334100
		Work in Process*		334100

            *$125400 + $24300 + $54600 + $75200 + $54600

b.         Office overhead incurred($38,800 +$13,100)………………              $51900

Office overhead applied…………………………………… 54600

Over applied overhead……………………………………               $2700

c.         Fees earned………………………………………………………     $381,100

Cost of services*………………………………………………… 331,400

Gross profit………………………………………………………      49,700

*$334,100 - $2,700.Assumes the over-or under applied office over head is closed to cost of services monthly.