Chapter 2, Problem 16E

Job order cost accounting for a service company

The Fly Company provides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The Fly Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 65% of media purchases.

On August 1, the four advertising projects had the following accumulated costs:

During August, The Fly Company incurred the following direct labor and media purchase costs related to preparing advertising for each of the four accounts:

At the end of August, both the Vault Bank and Take Off Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of services account.

Journalize the summary entry to record each of the following for the month:

1. A. Direct labor costs
2. B. Media purchases
3. C. Overhead applied
4. D. Completion of Vault Bank and Take Off Airlines campaigns