Amy and Jay Golden Have Worked for Five Years in a Firm

question 49

Essay

Amy and Jay Golden have worked for five years in a firm specializing in restoration of historical buildings. Amy has focused on interior reconditioning and Jay on architectural and structural design. They have specialized in residential structures for the past two years, and are thinking of forming their own residential restoration firm. They plan to do all the structural and decorative design, and subcontract the actual construction and decorative work. One of their concerns is to have an accounting system in place when they begin their business. You have been asked to assist them by answering the following questions.
Required:
(1) Since we have a very basic service-type firm, can a simple accounting system be developed?
(2) What kinds of information does the accounting system need to collect?

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Definitions:

Machine Hours

A measure of the amount of time a machine is operated during a given period, used as a basis for allocating manufacturing overhead.

Overhead Rate

The ratio used to allocate indirect costs to products or services, based on a specific base such as labor hours or machine hours.

Work In Process Account

A financial account used to track the costs associated with the production of goods that are not yet completed.

Two Stage Production

A production process divided into two distinct phases, each with its set of operations or focus areas, to complete the manufacture of a product or service.