Internet Designs, a Web site design and maintenance firm, uses job costing. Duri

Question

Internet Designs, a Web site design and maintenance firm, uses job costing. During November, the firm provided Web site services for two clients and billed those clients for the services performed. Internet Designs billed Mountain View Company for $200,000 and Palatine Productions for $100,000. Direct labor costs were $80 per hour. Internet Designs worked 1,500 hours on the Mountain View account and 900 hours on the Palatine account. The firm assigns overhead to jobs at the rate of $60 per billable hour. During November, the firm incurred actual overhead of $140,000. The firm incurred marketing and administrative costs of $60,000. All transactions were on account. (a) Show how Internet Designs' accounting system would record those revenues and costs using journal entries. (b) Prepare an income statement for November like the one in Exhibit 2.5 (c) Were the two jobs profitable for Internet Design? Exhibit 2.5: CORPORATE TRAINING GROUP Income Statement for the Month Ending July 31 Revenue from Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 Less Cost of Services Billed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000 Less: Direct Labor-Unbillable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 Overhead (underapplied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000a Marketing and Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000 a 2,000 = $22,000 incurred - $20,000 applied to jobs.

Explanation / Answer

Accounts Title Dr Cr Work in process (Wages Expenses) $192,000 Wages payable (120000+72000) $192,000 (Wages payable on account) Work in Process   144000 Overhead 144000 Overhead 140000 Accounts payable 140000 (Being actual cost incurred) Overhead 4000 Cost of Services 4000 Selling & Adminstrative expenses 60000 Selling & Adminstrative expenses Payable 60000 (Being S& A expenses incurred) Accounts receiveble $300,000 Service Revenue 300000 (being service performed on account) Total Direct labor Hours L 1500 900 Direct labor cost per hour $80 $80 Overhead cost per hour O $60 $60 Direct Labor Cost $120,000 $72,000 $192,000 Overhead Cost O*L $90,000 $54,000 $144,000 Income Statement Mountain View Palatine Production Revenue from Services $200,000 $100,000 Less: Cost of services build Direct Labor Cost 120000 72000 $192,000 Actual Overhead Cost $87,500 $52,500 $140,000 Overapplied ($4,000) Gross Loss ($7,500) ($24,500) ($32,000) Less: selling and administrative Expenses -60000 Add: Overapplied Overhead $2,500 $1,500 $4,000 Operating Loss ($88,000) Overhead Actual Incurred $140,000 Applied $144,000 Overapplied 4000 Mountain View (90000-87500) Palatine Production (54000-52500) Actual Overhead Cost in the ratio of 1500:900 Mountain View 140000*15/24 87500 Palatine Production 140000*9/24 52500 c) No the two jobs were not profitable

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