Chapter 2, Problem 15E

(a)

To determine

Job order cost system for service business

The job order cost accounting system is also used by service business. But the usage of job order cost system by service business for the service provided to the business. The service business which is using job order costing provides services which are unique to each customers with related costs that are very importance with each customer.

To record: journal entries for each of transactions.

Answer to Problem 15E

The journal entries for each transaction is prepared as follows:

Date						Account titles and Explanation	Debit ($)	Credit ($)
July					03	Work in process (175 hours × $150)	26,250
						Salaries Payable		26,250
						(Record charges for professional services)
July				10		Work in process	12,500
						Cash		12,500
						(Record reimbursement of travel costs)
July			14			Work in process (260 hours × $185)	48,100
						Salaries Payable		48,100
						(Record professional charges)
July		18				Work in process	30,000
						Consultant fees payable		30,000
						(Record invoice for expert testimony)
July	27					Work in process (435 hours × $62)	26,970
						Office overhead		26,970
						(Record factory overhead applied)
July	31					Office overhead	28,500
						Cash		28,500
						(Record administrative and support salaries paid)
July	31					Office overhead	4,000
						Supplies		4,000
						(Record office supplies used)
July	31					Salaries payable	74,350
						Cash		74,350
						(Record payment of professional salaries)
July	31					Accounts Receivable	172,500
						Fees earned		172,500
						(Record payment of professional salaries)
July	31					Cost of services (1)	143,820
						Work in process		143,820
						(Record cost of services for the month)

Table (1)

Explanation of Solution

Working note:

The cost of services is calculated as follows:

$\begin{array}{c}\text{Cost of services =}\left(\begin{array}{l}\text{Professional charges on July 03 + Travel cost on July 10 +}\\ \text{Professional charges on July 14 + Expert services provided on July 18}\\ \text{+ Factory overhead applied on July 27 }\end{array}\right)\\ =\$26,250+\$12,500+\$48,100+\$30,000+\$26,970\\ =\$143,820\end{array}$ (1)

(b)

To determine

To calculate: if the factory overhead is under-applied or over-applied.

Answer to Problem 15E

The under (or) over applied overhead is calculated as follows:

Particulars	Amount ($)
Office overhead incurred (2)	32,500
Less: Office overhead applied	26,970
Underapplied overhead	5,530

Table (2)

Explanation of Solution

Working note:

The overhead incurred is calculated as follows:

$\begin{array}{c}\text{Overhead incurred = Office overhead expenses + Supplies expenses}\\ \text{= \$28,500 + \$4,000}\\ \text{= \$32,500}\end{array}$ (2)

Conclusion

The factory overhead is under applied by $5,530.

(c)

To determine

gross profit for the service provided for O case.

Answer to Problem 15E

Answer:

The gross profit is calculated as follows:

Particulars	Amount ($)
Fees earned	172,500
Less: Cost of services (2)	149,350
Gross Profit	23,150

Table (3)

Explanation of Solution

Working note:

The cost of services is calculated as follows:

$\begin{array}{c}\text{Cost of services = Service cost + Underapplied overhead}\\ \text{= \$143,820 + \$5,530}\\ \text{= \$149,350}\end{array}$ (2)

Conclusion

Gross profit for the service is $23,150.