Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 14

Job Costing in a Service Organization

At the beginning of the month, Arthur’s Olde Consulting Corporation had two jobs in process that had the following costs assigned from previous months:

Job Number	Direct Labor	Applied Overhead
SY-400	$23,040	?
SY-403	15,120	?

During the month, Jobs SY-400 and SY-403 were completed but not billed to customers. The completion costs for SY-400 required $25,200 in direct labor. For SY-403, $72,000 in labor was used.

During the month, the only new job, SY-404, was started but not finished. Total direct labor costs for all jobs amounted to $148,320 for the month. Overhead in this company refers to the cost of work that is not directly traced to particular jobs, including copying, printing, and travel costs to meet with clients. Overhead is applied at a rate of 60 percent of direct labor costs for this and previous periods. Actual overhead for the month was $90,000.

Required

a. What are the costs of Jobs SY-400 and SY-403 at (1) the beginning of the month and (2) when completed?

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b. What is the cost of Job SY-404 at the end of the month?

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c. How much was under- or overapplied service overhead for the month?

Step 1 of 12

Job Costing:

Job order costing system is a type of system in which the businesses creates products or provides services based on the specifications of order placed by the customer or as required by the client. There are different types of companies like manufacturers of special equipment, accounting and consulting and legal firms, architects, aircraft and ship manufacturers, film studios or retail companies, book publishers who employ job costing system.