Job costs in a service organization. Internet Designs, a Web site design and mai
ID: 2490024 • Letter: J
Question
Job costs in a service organization. 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 worked an additional 100 hours that it did not charge to either 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 these 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?
Explanation / Answer
Answer (a)
Show how Internet Designs’ accounting system would record these revenues and costs using journal entries.
Receivables (Mountain View Company) A/c Dr. $200,000
To cost of sales (Internet Designs)A/c Cr. $200,000
Receivables (Palatine Productions) A/c Dr. $100,000
To cost of sales(Internet Designs) A/c Cr. $100,000
Direct wages (Internet Designs-Mountain View) A/c Dr. $ 120000 (1,500 hours * $80 per hour)
Direct wages (Internet Designs- Palatine) A/c Dr. $ 72000 (900 hours * $80 per hour)
To Wages payable (Internet Designs) A/c Cr. $ 192000
Indirect Wages (Internet Designs) A/c Dr. $ 8000 (100 hours * $80 per hour)
To wages payable (Internet Designs) A/c Cr. $ 8000
Work in process (Internet Designs) A/c Dr. $ 192000
To Direct wages (Internet Designs-Mountain View) A/c Cr. $ 120000
To Direct wages (Internet Designs- Palatine) A/c Cr. $ 72000
Service overhead (Internet Designs) A/c Dr. $ 8000
To Indirect wages (Internet Designs) A/c Cr. $ 8000
Service Overhead (Internet Designs) A/c Dr. $140,000
To overhead payable (Internet Designs) A/c Cr. $140,000
Work in process (Internet Designs) A/c Dr. $ 150000 [(1500 + 900 + 100) hours * $60 per hour]
To service Overhead (Internet Designs) A/c Cr. $ 150000
Service Overhead (Internet Designs) A/c Dr. $ 2,000 ($ 150,000 - $ 140,000 - $ 8000)
To Costing Profit and loss (Internet Designs)A/c Cr. $ 2,000
Finished Services (Internet Designs) A/c Dr. $ 342000
To work in Process (Internet Designs) A/c Cr. $ 342000 ( $ 192000 + $ 150000)
Cost of Sales (Internet Designs) A/c Dr. $ 342000
To Finished Services (Internet Designs) A/c Cr. $ 342000
Marketing and administrative costs (Internet Designs) A/c Dr. $ 60,000
To Marketing and administrative payables (Internet Designs) A/c Cr. $ 60,000
Cost of sales (Internet Designs) A/c Dr. $ 60,000
To Marketing and administrative costs (Internet Designs) A/c Cr. $ 60,000
Costing profit and loss (Internet Designs) A/c Dr. $ 102000 ($ 300000 - $ 342000 - $ 60000)
To Cost of sales (Internet Designs) A/c Cr. $ 102000
Profit and Loss A/c Dr. $ 100,000
To Costing profit and loss (Internet Designs) A/c Cr. $ 100,000 ( $ 102,000 - $ 2000)
Answer c
The two jobs were not profitable for Internet Design because it has incurred loss of $ 100,000
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