Chapter 2, Problem 22E

Preparing Journal Entries

Floyds Auto Repair Shop uses a job order Cost System to track the cost of each repair. Floyd's applies its garage or shop overhead at a rate of $20 per direct labor hour spent on each repair. Floyd's uses the following accounts to track the cost of all repairs:


* Because an auto shop does not manufacture a product, the overhead cost includes all of the indirect costs that are incurred in the garage or Shop that cannot be traced to a specific repair job.
The following transactions occurred during the most recent month:
(a) Purchased raw (parts and supplies) on account $16,000.
(b) Used $14,000 in raw materials (parts and supplies). Of this, $10,000 was for major parts that were traceable to individual repair jobs, and the remainder was for incidental supplies such as lubricants, rags, fuel. and so on.
(c) Recorded a total of $12,000 in direct cost (for 500 hours) that are not yet paid.
(d) Applied overhead to repair jobs at a rate of $20 per direct hour.
(e) Recorded the following actual overhead costs:
(f) Completed repair jobs costing $40,000 and charged customers at cost plus an additional 30 percent. (Note: You can bypass the Finished Goods Inventory which appropriate in this context.)
Prepare journal entries for transactions (a) through (f) using the account names shown and other appropriate accounts such as Cash, payables, Accumulated Depreciation. Prepaid, and Sales Revenue.