Widget Construction, Inc., is a home builder in New Mexico. Widget uses a job order costing system in which each house is a job. Because it constructs houses, the company uses accounts titled Construction wages and Construction overhead.
The following events occurred during August:
a. Purchased Materials on account $470,000
b. Incurred Contrstucion wages of $230,000. Requisitioned direct materials and used direct labor in construction:
Direct Materials Direct Labor
House 402 $58,000 $40,000
House 403 $63,000 $34,000 $177,000
House 404 $60,000 $52,000 $221,000
House 405 $89,000 $51,000
c. Deprectaion of construction equipment $6,800
d. Other overhead costs incurred on houses 402 through 405.
Indirect Labor $44,000
Equipment rentals in cash $33,000
Worker liability insurance expired $7,000
e. Allocated overhead to jobs at the predetermined rate of 40% of direct labor cost
f. Houses completed 402 and 404
g. House 404 Sold for $220,000
Deliverables:
1. Record the events in the general journal
2. Post the appropriate entries to the T-accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
3. Add the costs of the unfinished houses, and show that this total amount equals the ending balances in the Work in process inventory account.
4. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished goods inventory.
5. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction?