O.4 (Comprehensive) Birmingham Contractors uses a job order costing system. InÂ
ID: 2371981 • Letter: O
Question
O.4 (Comprehensive) Birmingham Contractors uses a job order costing system. InÂ
May 2010, the company made a $3,300,000 bid to build a pedestrian overpass over theÂ
beach highway at Gulf Shores, Alabama. Birmingham Contractors won the bid andÂ
assigned #515 to the project. Its completion date was set at December 15, 2010. Th eÂ
following costs were estimated for completion of the overpass: $1,240,000 for directÂ
material, $670,000 for direct labor, and $402,000 for overhead.
During July, work began on job #515; direct material cost assigned to Job #515Â
was $121,800, and direct labor cost associated with it was $175,040. The ï ¬rm uses a
predetermined OH rate of 60 percent of direct labor cost. Birmingham Contractors
also worked on several other jobs during July and incurred the following costs:
Direct material (including Job #515) issued $579,300
Direct labor (including Job #515) accrued 584,000
Indirect labor accrued 55,800
Administrative salaries and wages accrued 39,600
Depreciation on construction equipment 26,400
Depreciation on offi ce equipment 7,800
Client entertainment (on accounts payable) 11,100
Advertising for fi rm (paid in cash) 6,600
Indirect material (from supplies inventory) 18,600
Miscellaneous expenses (design-related; to be paid in the following month) 10,200
Accrued utilities (for offi ce, $1,800; for construction, $5,400) 7,200
During July, Birmingham Contractors completed several jobs that had been in processÂ
before the beginning of the month. Th ese completed jobs sold for $1,224,000 and
payment will be made to the company in August. Th e related job cost sheets showed
costs associated with those jobs of $829,000. At the beginning of July, Birmingham
Contractors had Work in Process Inventory of $871,800.
a. Prepare a job order cost sheet for Job #515, including all job details, and post the
appropriate cost information for July.
b. Prepare journal entries for the preceding information.
c. Prepare a Cost of Goods Manufactured Schedule for July for Birmingham
Contractors.
d. Assuming that the company pays income tax at a 40 percent rate, prepare an income
statement for Birmingham Contractors.
Explanation / Answer
a) Job Order Cost Sheet
Job No. 515
Customer Name: Gulf Shores, Alabama
Job Description: Pedestrian Overpass
Date Promised: 12-15-10 Date Started: 7-1-10 Date Completed:
Direct Materials: July 1 $121,800
Direct Labor: July 1 $175,050
Manufacturing Overhead: July 1 $105,024
b) Journal Entries
DR: Work in process - $579,300
CR: Raw materials inventory- 579,300
DR:Work in process- 584,000
CR: Wages payable - 584,000
DR: Manufacturing overhead - 55,800
CR: Wages payable - 55,800
DR: Wage expense - 39,600
CR: Wages payable - 39,600
DR: Manufacturing overhead - 26,400
CR: Accumulated depreciation (constuction equipment) - 26,400
DR: Depreciation expense - 7,800
CR: Accumulated dep'n (office equipment) - 7,800
DR: Entertainment expense - 11,100
CR: Accounts payable - 11,100
DR: Advertising expense- 6,600
CR: Cash - 6,600
DR: Manufacturing overhead - 18,600
CR: Supplies - 18,600
DR: Misc Expense - 10,200
CR: Misc Expense payable - 10,200
DR:Utility expense - 1,800
DR: Manufacturing overhead - 5,400
CR: Utilities payable - 7,200
DR: Accounts receivable - 1,224,000
CR: Sales - 1,224,000
DR: Cost of goods sold: 829,000
CR: Finished goods: 829,000
c) Cost of Goods Manufactured
Beginning work in process: 871,800
Add:
Direct materials used: 579,300
Direct labor: 584,000
Total manufacturing overhead: 106,200
Total manufacturing costs to account for: 2,141,300
Less: Ending work in process: 1,312,300
Cost of goods manufactured: 829,000
d) Income Statement
Sales reveunue: $1,224,000
Less cost of goods sold: 829,000
Gross profit: 395,000
Less operating expenses:
Wage exp - 39,600
Dep'n exp - 7,800
Entertainment exp - 11,100
Advertising exp - 6,600
Misc exp - 10,200
Utility exp - 1,800
Total operating expenses: 77,100
Operating income: 317,900
Income tax: 127,160
Net income: 190,740
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