Job-order costing in a service company Jarman Consulting Inc. provides financial
ID: 2443356 • Letter: J
Question
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.
Explanation / Answer
a. Assuming the revenue from Contract 3 was $65,600, what amount of income did Jarman earn from this contract?
Revenue from Contract 3 $65,600
Less : Costs
Direct labor costs $28,800
Overheads $21,600x28.8/48 $12,960 $41,760
Income $23,840
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.
If the service for the Contract 1 has been delivered to the client in full and Invoice not yet made then only it should be report finished goods inventory on its balance sheet, otherwise it should be shown as Work-In Process Inventory at the costs as shown hereunder:
Contract 1 Direct labor costs $12,000
Overheads $21,600 x 12/48 $5,400
Total $17,400
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.