Job Costs in a Service Organization

question 61

Essay

Job costs in a service organization.Adams and Associates,a CPA firm,uses job costing.During January,the firm provided audit services for two clients and billed those clients for the services performed.Paxton Productions was billed for 4,000 hours at $140 per hour,and Young Industries in was billed for 2,000 hours at $140 per hour.Direct labor costs were $75 per hour.Of the 6,400 hours worked in January,400 hours were not billable.The firm assigns overhead to jobs at the rate of $25 per billable hour.During January,the firm incurred actual overhead of $155,000.The firm incurred marketing and administrative costs of $35,000.All transactions were on account.
Required:
a.Show how Adams and Associates' accounting system would record these revenues and costs using journal entries.
b.Prepare an income statement for January like the one in Exhibit 2.5 in the text.
(Adams and Associates;job costs in a service organization. )

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Definitions:

Zero-Based

A budgeting method where all expenses must be justified for each new period, starting from a "zero base," without reference to previous budgets.

Incremental

Pertaining to an increase or addition, especially in a series of small, regular steps.

Depreciation

A method of allocating the cost of a tangible asset over its useful life.

Amortization

The process of spreading out a loan into a series of fixed payments over time, covering both principal and interest.