Problem: Exercise 18-4A Job-order costing in a manufacturing company Seahawk Inc. builds sailboats. On January 1, 2004, the company had the following account balances: $40,000 for both cash and common stock. Boat 25 was started on February 10 and finished on May 31. To build the boat, Seahawk had incurred cash costs of $5,100 for labor and $4,350 for materials. During the same period, Seahawk paid $6,600 cash for actual manufacturing overhead costs. The company expects to incur $175,500 of indirect overhead cost during 2004. The overhead is allocated to jobs based on direct labor cost. The expected total labor cost for the year is $135,000. Seahawk uses a just-in-time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account. Required a. Use the horizontal financial statements model, as illustrated here, to record Seahawk?s manufacturing events. In the Cash Flow column, designate the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first row shows beginning balances. b. If Seahawk desires to earn a profit equal to 20 percent of cost, for what price should it sell the boat? c. If the boat is not sold by year end, what amount would appear in Work in Process Inventory and Finished Goods Inventory on the balance sheet for Boat 25? d. Is the amount of inventory you calculated in Requirement c the actual or the estimated cost of the boat? e. When is it appropriate to use estimated inventory cost on a year-end balance sheet? Exercise 18-6A Job-order costing in a service company Sertoma Condos Inc. a small company owned by Adam Garner, leases three condos of differing sizes to customers as vacation facilities. Labor costs for each condo consist of maid service and maintenance cost. Other direct operating costs consist of interest and depreciation. The direct operating costs for each condo follow. Direct labor Othe Direct Operating costs Condo 1 $ 7,200 $18,000 Condo 2 9,300 21,000 Condo 3 11,250 28,500 Total $27,750 $67,500 Indirect operating expenses, which amounted to $20,250, are allocated to the condos in proportion to the amount of other direct operating costs incurred for each. Required a. Assuming that the amount of rent revenue from Condo 2 is $48,000, what amount of income did it earn? b. Based on the preceding information, will the company show finished goods inventory on its balance sheet? If so, what is the amount of this inventory? If not, explain why not. Exercise 18-4B Job-Order costing in a manufacturing company Maher Drapery Inc. specializes in making custom draperies for both commercial and residential customers. It began business on August 1, 2004, by acquiring $40,000 cash through issuing common stock. In August 2004, Maher accepted drapery orders, Jobs 801 and 802, for two new commercial buildings. The company paid cash for the following costs related to the orders: Job 801 Raw materials $ 7,360 Direct labor (512 hours at $20 per hour) 10,240 Job 802 Raw materials 5,200 Direct labor (340 hours at $20 per hour) 6,800 During the same month, Maher paid $14,400 for various indirect costs such as utilities, equipment leases, and factory-related insurance. The company estimated its annual manufacturing overhead cost would be $240,000 and expected to use 20,000 direct labor hours in its first year of operation. It planned to allocate overhead based on direct labor hours. On August 31, 2004, Maher completed Job 801 and collected the contract price of $28,000. Job 802 was still in process. Maher uses a just-in-time inventory management system. Consequently, it has no raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account. Required a. Use a horizontal financial statements model as follows to record Maher?s accounting events for August 2004. The first event is shown as an example. b. What was Maher?s ending inventory on August 31, 2004? Is this amount the actual or the estimated inventory cost? c. When is it appropriate to use estimated inventory cost on a year-end balance sheet? Exercise 18-6B Job-order costing in a service company Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients. It incurred the following labor costs on services for three corporate clients during March 2006: Direct Labor Contract 1 $12,000 Contract 2 7,200 Contract 3 28,800 Total $48,000 Jarman allocated March overhead costs of $21,600 to the contracts based on the amount of direct labor costs incurred on each contract. Required a. Assuming the revenue from Contract 3 was $65,600, what amount of income did Jarman earn from this contract? b. Based on the preceding information, will Jarman report finished goods inventory on its balance sheet for Contract 1? If so, what is the amount of this inventory? If not, explain why not.
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