EX 19-18 Job order cost accounting entries for a service business

The Crosby Company provides advertising services for clients across the nation. The Crosby Company is presently working on four projects, each for a different client. The Crosby Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 70% of media purchases.

On June 1, the four advertising projects had the following accumulated costs:


June 1 Balances
Starks Bank $180,000
Finley Airlines 54,000
Branch Hotels 140,000
Sanders Beverages 76,500
Total $450,500
During June, The Crosby Company incurred the following direct labor and media
purchase costs related to preparing advertising for each of the four accounts:
Direct Labor Media Purchases
Starks Bank $126,000 $ 472,500
Finley Airlines 56,250 416,500
Branch Hotels 247,500 303,750
Sanders Beverages 281,250 227,250
Total $711,000 $1,420,000


At the end of June, both the Starks Bank and Finley Airlines campaigns were completed.

The costs of completed campaigns are debited to the cost of services account.

Journalize the summary entry to record each of the following for the month:

a. Direct labor costs
b. Media purchases
c. Overhead applied
d. Completion of Starks Bank and Finley Airlines campaigns


Answer:

a.
 Work in Process 711,000
Salaries Payable 711,000
b.
 Work in Process 1,420,000
Accounts Payable 1,420,000 
c.
 Work in Process (70% × $1,420,000) 994,000
Agency Overhead 994,000
d.
 Cost of Services 1,927,550
Work in Process 1,927,550
Cost of completed jobs, $1,927,550:
Starks Finley
Bank Airlines
June 1 balance…………………………………………………… $ 180,000 $ 54,000
June costs:
Direct labor………………………………………………… 126,000 56,250
Media…………………………………………………………… 472,500 416,500
Overhead…………………………………………………… 330,750 * 291,550 **
Total costs……………………………………………………… $1,109,250 $818,300
* 70% × $472,500
** 70% × $416,500