Applying Overhead in a Service Company; Journal Entries
Local Landscaping uses a job-order costing system to track the costs of its landscaping proj- ects. The company provides complete garden design and landscaping services. The following table provides data concerning the three landscaping projects that were in process during May. There was no work in process at the beginning of May:
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Project
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Williams
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Chandler
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Nguyen
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Designer-hours
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200
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80
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120
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Direct materials cost
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$4,800
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$1,800
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$3,600
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Direct labour cost
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$2,400
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$1,000
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$ 1,500
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Actual overhead costs were $16,000 for May. Overhead costs are applied to projects on the basis of designer-hours since most of the overhead is related to the costs of the garden design studio. The predetermined overhead rate is $45 per designer-hour. The Williams and Chandler projects were completed in May; the Nguyen project was not completed by the end of the month. No other jobs were in process during May.
Required:
1. Compute the amount of overhead cost that would have been charged to each project dur- ing May.
2. Prepare a journal entry showing the completion of the Williams and Chandler projects and the transfer of costs to the Completed Projects (i.e., Finished Goods) account.
3. What is the balance in the Work in Process account at the end of the month?
4. What is the balance in the Overhead account at the end of the month? What is this bal- ance called?