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. 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 $ House 402 House 403 House 404 House 405 57,000 $ 67,000 66,000 87,000 Predetermined overhead allocation rate 49,000 37,000 55,000 53,000 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 g. Houses completed: 402, 404 h. House sold on account: 404 for $230,000 e. Other overhead costs incurred: Equipment rentals paid in cash, $32,000; Worker liability insurance expired, $4,000. 1. Allocated overhead to jobs.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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![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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97defb29-5fbc-46d6-bd9c-f02949c5b505%2Fede1f9eb-d968-4baa-8c52-52f9eb713db1%2Fvfe9q9b_processed.png&w=3840&q=75)
![Sherborn Construction, Inc. is a home builder in Arizona. Sherborn uses a job order costing system in which each
house is a job. Because 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:
i (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
Predetermined overhead
allocation rate
49,000
37,000
55,000
53,000
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
e. Other overhead costs incurred: Equipment rentals paid cash, $32,000; Worker liability insurance expired, $4,000.
f. Allocated overhead to jobs.
g. Houses completed: 402, 404
h. House sold on account: 404 for $230,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97defb29-5fbc-46d6-bd9c-f02949c5b505%2Fede1f9eb-d968-4baa-8c52-52f9eb713db1%2Fugf9ky_processed.png&w=3840&q=75)
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