Question

Indah Architects use the job costing method to identify the costs of construction projects. The company offers consulting services and house plan drawings to customers. The table below presents the report for three ongoing projects in October 2023.

Project A: Draftsman Hours > 84 Direct Raw Material > RM3200 Direct Labor > RM6700
Project B: Draftsman Hours > 70 Direct Raw Material > RM2600 Direct Labor > RM5500
Project C: Draftsman Hours > 63 Direct Raw Material > RM1100 Direct Labor > RM5000

The overhead cost for October 2023 is RM21,000. The absorbed overhead cost into each project is based on the number of draftsman hours. The predetermined overhead cost is RM120 for each draftsman hour. Projects A and B are expected to be completed in October 2023, while Project C is expected to be completed in November 2023. You are required to:
a) Calculate the total overhead costs to be incurred for each project in October 2023. b) Calculate and prepare journal entries for costs to be transferred to the finished project account for October 2023.
c) Calculate the work in process (WIP) balance for October 2023.
d) Calculate the remaining overhead account balance at the end of the month and explain its position.

Answer 1

a) Total overhead costs:: Project A = RM10,080

Project B = RM8,400

Project C does not have its overhead costs incurred in October 2023, so it will not have any overhead costs for this month.

b) Journal entries:: Project A: Debit Finished Project Account RM17,980, Credit Direct Raw Material Account RM3,200, Credit Direct Labor Account RM6,700, Credit Overhead Account RM10,080

Project B: Debit Finished Project Account RM13,700, Credit Direct Raw Material Account RM2,600, Credit Direct Labor Account RM5,500, Credit Overhead Account RM8,400.

c) WIP Balance:: Project A: RM17,980

Project B: RM13,700

Project C: RM0 (since it will be completed in November 2023)

d) The remaining overhead account balance is a deficit of RM-2,480.

Step-by-step explanation:

In order to answer the given questions, we need to perform several calculations using the information provided:

a) Total overhead costs for each project:

• Project A: 84 draftsman hours x RM120/draftsman hour = RM10,080
• Project B: 70 draftsman hours x RM120/draftsman hour = RM8,400

Project C does not have its overhead costs incurred in October 2023, so it will not have any overhead costs for this month.

b) Journal entries for costs to be transferred to the finished project account:

Project A:

• Debit Finished Project Account RM17,980,
• Credit Direct Raw Material Account RM3,200,
• Credit Direct Labor Account RM6,700,
• Credit Overhead Account RM10,080

Project B:

• Debit Finished Project Account RM13,700,
• Credit Direct Raw Material Account RM2,600,
• Credit Direct Labor Account RM5,500,
• Credit Overhead Account RM8,400

c) Work in Process (WIP) balance for October 2023:

• Project A: RM17,980
• Project B: RM13,700
• Project C: RM0 (since it will be completed in November 2023)

d) Remaining overhead account balance:

The remaining overhead account balance at the end of the month is RM21,000 (initial overhead cost), minus the overhead costs absorbed by the completed projects A and B (RM10,080 + RM8,400 = RM18,480).

Therefore, the remaining overhead account balance is a deficit of RM-2,480.