Job costs in a service organization. Crafty Ideas, an advertising firm, uses job costing. During March, the firm designed ads for two clients and billed those clients for the services performed. Crafty Ideas billed Franklin Groceries for $100,000 and Truman Trust for $200,000. Direct labor costs were $50 per hour. Crafty Ideas worked 1,000 hours on the Franklin job and 2,000 hours on the Truman Trust job. The firm could not charge 300 hours to either job. The firm assigns overhead to jobs at the rate of $20 per billable hour. During March, the firm incurred actual overhead of $70,000. The firm incurred marketing and administrative costs of $20,000. All transactions were on account.
a. Show the flow of these revenues and costs through T-accounts.
b. Prepare an income statement for March like the one in Exhibit 2.5.
c. Were these two jobs profitable for Crafty Ideas?
Text Book: Managerial Accounting: An Introduction to Concepts, Methods and Uses By Michael Maher, Clyde Stickney, And Roman Weil.