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

Exercise 15

Job Costing in a Service Organization

For August, Royal Consulting and Mediation Practice (RCMP) worked 900 hours for Alberta Company and 2,100 hours for Ontario Corporation. RCMP bills clients at the rate of $300 per hour; labor cost for its consulting staff is $150 per hour. The total number of hours worked in September was 3,000, and overhead costs were $45,000. Overhead is applied to clients at $18 per labor-hour. In addition, RCMP had $180,000 in marketing and administrative costs. All transactions are on account. All services were billed.

Required

a. Show labor and overhead cost flows through T-accounts.

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b. Prepare an income statement for the company for August.

Step 1 of 2

a.	Wages Payable				Work in Process			Cost ofServices Billed
		450,000a			450,000a	504,000c		504,000c	9,000d
					54,000b
	Service Overhead Control				Applied Service O.H.
	45,000		45,000d		54,000d	?54,000b

a$150 per hour x 900 hours for Alberta Company, and $150 per hour x 2,100 hours for Ontario Corp.

b$18 per hour x 900 hours for Alberta Company, and $18 per hour x 2,100 hours for Ontario Corp.

cSum of work done during August, all billed to clients.

dClosing entry to record overapplied overhead of $9,000 (= $54,000 applied – $45,000 actual)