| Widget Construction, Inc., is a home builder in New Mexico. Widget uses a job order costing |
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| system in which each house is a job. Because it constructs houses, the company uses accounts |
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| titled Construction wages and Construction overhead. The following events occurred during |
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| August: |
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a. Purchased Materials on account $470,000 |
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b. Incurred Contrstucion wages of $230,000. Requisitioned direct materials and used direct labor in construction: |
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Direct Materials |
Direct Labor |
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House 402 |
$ 58,000 |
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$ 40,000 |
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House 403 |
$ 63,000 |
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$ 34,000 |
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House 404 |
$ 60,000 |
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$ 52,000 |
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House 405 |
$ 89,000 |
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$ 51,000 |
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c. Deprectaion of construction equipment $6,800 |
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d. Other overhead costs incurred on houses 402 through 405. |
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Indirect Labor |
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$ 44,000 |
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Equipment rentals in cash |
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$ 33,000 |
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Worker liability insurance expired |
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$ 7,000 |
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e. Allocated overhead to jobs at the predetermined rate of 40% of direct labor cost |
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f. Houses completed 402 and 404 |
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g. House 404 Sold for $220,000 |
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| Deliverables |
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| 1. |
Record the events in the general journal |
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| 2. |
Post the appropriate entries to the T-accounts, identifying each entry by letter. Determine the |
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ending account balances, assuming that the beginning balances were zero. |
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| 3. |
Add the costs of the unfinished houses, and show that this total amount equals the ending |
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balances in the Work in process inventory account. |
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| 4. |
Add the cost of the completed house that has not yet been sold, and show that this equals |
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the ending balance in Finished goods inventory. |
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| 5. |
Compute gross profit on the house that was sold. What costs must gross profit cover for |
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Sherborn Construction? |
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| Deliverable 1 |
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Record the events in the general journal. Start with the entry from event (a). |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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a. |
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| Event (b) has two journal entries to record. First record the construction wages. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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b. |
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| Now record the requisitioned direct materials and direct labor used. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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b. |
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| Next record the depreciation of construction equipment, $6,800. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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c. |
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| Record the overhead costs incurred on houses 402 through 405. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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d. |
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| Record the allocated overhead to jobs at the predetermined rate of 40% of direct labor cost. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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e. |
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| Record the completed houses 402 and 404 in event (f). |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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f. |
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| Begin by recording the revenue from the sale of house 404. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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g. |
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| Next record the cost of goods sold from the sale of house 404. |
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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g. |
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| Deliverable 2 |
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Post the appropriate entries to the Work in process inventory and Finished goods |
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inventory T-accounts. Identify each entry by letter and determine the ending account |
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balances. The sharded area is for the letter. |
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| Work in process inventory |
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| (b) |
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(f) |
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| (e) |
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| Bal. |
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| Finished goods inventory |
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| (f) |
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(g) |
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| Bal. |
– |
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| Deliverable 3 |
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Show how the costs of the unfinished houses equals the ending balance in |
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Work in process inventory. |
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Widget Construction, Inc. |
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Reconciliation of Work in process inventory Subsidiary |
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and Control Accounts |
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House #403 |
House #405 |
Total WIP Balance |
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Unfinished houses: |
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Direct materials |
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Direct labor |
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Manufac. overhead -40% of labor |
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Total costs = Work in Process |
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| Deliverable 4 |
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Show how the costs of the completed houses equals the ending balance in |
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Finished goods inventory. |
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Widget Construction, Inc. |
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Reconciliation of Finished goods inventory Subsidiary |
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and Control Accounts |
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House#402 |
Total Finished Goods Bal. |
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Completed, unsold house: |
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Direct materials |
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Direct labor |
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Manufac. overhead -40% of labor |
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Total cost = Finished Goods bal. |
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| Deliverable 5 |
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Compute the gross profit for the house that was sold. |
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Widget Construction, Inc. |
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Gross profit on Homes Sold in August |
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House #404 |
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Sales revenue |
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Less: Cost of goods sold |
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Gross profit |
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The gross profit must cover these types of costs: |
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