Problem:
The consulting firm of Reznick and Fedder accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during May:
May 7 Charged 440 hours of professional (lawyer) time to the Daley Co. breech of contract suit to prepare for the trial, at a rate of $175 per hour.
11 Reimbursed travel costs to employees for depositions related to the Daley case, $24,000.
22 Charged 225 hours of professional time for the Daley trial at a rate of $250 per hour.
25Received invoice from consultants Rucker and Putnam for $47,000 for expert testimony related to the Daley trial.
30 Applied office overhead at a rate of $45 per professional hour charged to the Daley case.
31 Paid secretarial and administrative salaries of $20,000 for the month.
31 Used office supplies for the month, $6,000.
31 Paid professional salaries of $55,000 for the month.
31 Billed Daley $260,000 for successful defense of the case.
a. Provide the journal entries for each of the above transactions.
b. How much office overhead is over- or underapplied?
c. Determine the gross profit on the Daley case, assuming that over- or underapplied office overhead is closed annually to cost of services.