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Requirements 1. Calculate Sherborn's predetermined overhead allocation rate for the year. 2. Prepare journal entries to record the events in the general journal. 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. 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. 5. Add the costs of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory. 6. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction? 1

Requirements 1. Calculate Sherborn's predetermined overhead allocation rate for the year. 2. Prepare journal entries to record the events in the general journal. 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. 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. 5. Add the costs of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory. 6. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction? 1

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Requirements 1. Calculate Sherborn's predetermined overhead allocation rate for the year. 2. Prepare journal entries to record the events in the general journal. 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. 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. 5. Add the costs of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory. 6. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction? 1
Transcribed Image Text:Requirements 1. Calculate Sherborn's predetermined overhead allocation rate for the year. 2. Prepare journal entries to record the events in the general journal. 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. 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. 5. Add the costs of the completed house that has not yet been sold, and show that this equals the ending balance in Finished Goods Inventory. 6. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction? 1
Sherborn Construction, Inc. is a home builder in Arizona. Sherborn 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 $2,700,000. The following events occurred during August: (Click the icon to view the events.) Read the requirements. Requirement 1. Calculate Sherborn's predetermined overhead allocation rate for the year. House 402 House 403 House 404 House 405 a. Purchased materials on account, $480,000 b. Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned. Direct Materials Direct Labor $ 57,000 $ 67,000 66,000 87,000 (...) 49,000 37,000 55,000 53,000 f. Allocated overhead to jobs. g. Houses completed: 402, 404 h. House sold on account: 404 for $230,000 Predetermined overhead allocation rate c. The company incurred total wages of $300,000. Use the data from Item b to assign the wages. Wages are not yet paid. d. Depreciation of construction equipment, $6,400 . Other overhead costs incurred: Equipment rentals paid in cash, $32,000; Worker liability insurance expired, $4,000.
Transcribed Image Text:Sherborn Construction, Inc. is a home builder in Arizona. Sherborn 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 $2,700,000. The following events occurred during August: (Click the icon to view the events.) Read the requirements. Requirement 1. Calculate Sherborn's predetermined overhead allocation rate for the year. House 402 House 403 House 404 House 405 a. Purchased materials on account, $480,000 b. Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned. Direct Materials Direct Labor $ 57,000 $ 67,000 66,000 87,000 (...) 49,000 37,000 55,000 53,000 f. Allocated overhead to jobs. g. Houses completed: 402, 404 h. House sold on account: 404 for $230,000 Predetermined overhead allocation rate c. The company incurred total wages of $300,000. Use the data from Item b to assign the wages. Wages are not yet paid. d. Depreciation of construction equipment, $6,400 . Other overhead costs incurred: Equipment rentals paid in cash, $32,000; Worker liability insurance expired, $4,000.
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