a. Purchased materials on account, $400,000 b. Requisitioned direct materials an

Question

a. Purchased materials on account, $400,000 b. Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned Direct Materials Direct Labor House 402 $ House 403 House 404 House 405 52,000 $ 64,000 61,000 83,000 47,000 32,000 58,000 51,000 C. The company incurred total wages of $290,000. Use the data from Item b to assign the wages. Wages are not yet paid d. Depreciation of construction equipment, S6,400 e. Other overhead costs incurred: Equipment rentals paid in cash, S35,000; Worker liability insurance expired, $9,000 f. Allocated overhead to jobs. g. Houses completed: 402, 404 h. House sold on account: 404 for $250,000

Explanation / Answer

Sherborn Construction Inc Requirement 1 Calculation of predetermined overhead allocation rate for the year Working Notes House 402 403 404 405 Total Wages 290000 Material 52000 64000 61000 83000 Less : Direct Labor 188000 Direct Labor 47000 32000 58000 51000 Balance Indirect Labor 102000 Construction Overhead 38100 38100 38100 38100 Depreciation on Equipment 6400 Total cost 137100 134100 157100 172100 Equipment Rental 35000 Status Completed WIP Completed WIP Worker liability Insurance 9000 Total Overhead     A 152400 No. of Housing unit     B 4 Overhead allocation rate =A/B 38100 Note : alternatively we can divide total overhead by direct Labor hour which are not given So, we have taken housing units to find the overhead allocation rate Requirement 2 Account title & Explanation Debit Credit Amount in $ Amount in $ a Raw Material Inventory 400000 Accounts Payable 400000 b Work in Process Inventory 260000 Raw Material Inventory 260000 c Work in Process Inventory 188000 Direct Labor 188000 Direct Labour 188000 Indirect Labor 102000 Wages Payable 290000 d Depreciation 6400 Accumulated Depreciation 6400 e Equipment rental 35000 Worker Insurance 9000 Cash 35000 Prepaid worker's Insurance 9000 f Work In Process Inventory 152400 Indirect Labor 102000 Depreication 6400 Equipment Rental 35000 Worker Insurance 9000 g Finished goods Inventory 294200 Work In Process 294200 See Working Note h Account Receivable 250000 Revenue from Sales 250000 Cost of sales 157100 Finished goods Inventory 157100 Requirement 3 Work in Process Inventory Raw Material Inventory 260000 Finished goods Inventory 294200 Direct Labor 188000 Indirect Labor 102000 Depreication 6400 Equipment Rental 35000 Worker Insurance 9000 Ending Balance 306200 600400 600400 Finished goods Inventory Work In process Inventory 294200 Cost of sales 157100 Ending Balance 137100 294200 294200 Requirement 4 Reconciliation of Work in Process subsidiary and control Account Total Total WIP Balance House 403 House 405 306200 Unfinished Houses Material 64000 83000 Direct Labor 32000 51000 Overhead 38100 38100 Total cost ending WIP Inventory 134100 172100 306200 Requirement 5 Reconcilation of Finished goods subsidiary and controll Accounts House 402 Completed unsold houses Material 52000 Direct Labor 47000 Overhead 38100 Total cost equals ending Finished goods Inventory 137100 Requirement 6 Computation of gross profit House 404 Sales amount 250000 Less : Cost of sales 157100 Gross Profit 92900 Following types of cost the gross profit must cover Construction Wages Direct Labor Direct Material Thank You

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