The law firm of Furlan and Benson accumulates costs associated with individual c

Question

The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system . The following transactions occurred during July:

Jul. 3 Charged 175 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $150 per hour.

10 Reimbursed travel costs to employees for depositions related to the Obsidian case, $12,500.

14 Charged 260 hours of professional time for the Obsidian trial at a rate of $185 per hour.

18 Received invoice from consultants Wadsley and Harden for $30,000 for expert testimony related to the Obsidian trial.

27 Applied office overhead at a rate of $62 per professional hour charged to the Obsidian case.

31 Paid administrative and support salaries of $28,500 for the month.

31 Used office supplies for the month, $4,000.

31 Paid professional salaries of $74,350 for the month.

31 Billed Obsidian $172,500 for successful defense of the case.

Required:

A. Provide the journal entries for each of these transactions. Refer to the Chart of Accounts for exact wording of account titles.

B. How much office overhead is over- or underapplied? C. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.

Explanation / Answer

Part A)

The journal entries are given below:

___________

Part B)

The amount of overhead under/overhead applied can be calculated as follows:

Overhead Underapplied = Overheads Incurred - Overhead Applied = (28,500 + 4,000) - 26,970 = $5,530

___________

Part C)

The gross profit has been calculated as follows:

Date Description Ref Debit Credit July 3 Work in Process (175*150) 26,250 Salaries Payable 26,250 July 10 Work in Process 12,500 Cash 12,500 July 14 Work in Process (260*185) 48,100 Salaries Payable 48,100 July 18 Work in Process 30,000 Accounts Payable/Consultant Fees Payable 30,000 July 27 Work in Process ((175+260)*62) 26,970 Office Overhead 26,970 July 31 Office Overhead 28,500 Cash 28,500 July 31 Office Overhead 4,000 Supplies 4,000 July 31 Salaries Payable 74,350 Cash 74,350 July 31 Accounts Receivable 172,500 Service Revenue/Fees Earned 172,500 July 31 Cost of Services (26,250 + 12,500 + 48,100 + 30,000 + 26,970) 143,820 Work in Process 143,820

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