2. The following activity was recorded in Pearson Architectural Inc.\'s Work in

ID: 2550528 • Letter: 2

Question

2. The following activity was recorded in Pearson Architectural Inc.'s Work in Process account for the first month of operations Work in Process Costs of subcontracted work 90,000 To completed projects 570,000 Direct staff costs Studio overhead 200,000 320,000 Pearson Architectural is a service firm. Costs of subcontracted work are comparable to Direct Materials: Direct Staff Costs is the same as Direct Labor; Studio Overhead is the same as Applied Manufacturing Overhead and Completed Projects is the same as Finished Goods Pearson Architectural uses a job-orderc dio overhead to Work in Prwess oe the basis of direct staff costs. At the end of January, only one job was still in process. This job (Kninmer HO pnjet) had been charged with $10,000 in direct staff costs. How much were the costs of subeontracted work partially completed Krimmer HQ project? A. $16,000 B. $14,000 C. $6,000 D. $40,000 E, None of the above chaged to the

Explanation / Answer

Cost of Sub contract Work

90,000

To Completed Project

570,000

Direct Staff Cost

200,000

Ending Work in progress

40,000

Studio Cost

320,000

Ending Work in Progress = Cost of Subcontract Work+ Direct Staff cost +Studio cost – completed Project

= $90,000 + $200,000 + $320,000 – $570,000 = $40,000

So Total Ending Work in Progress is $ 40000

As we know out of that $10,000 Direct Staff Cost.

So Studio Cost= ($320,000/$200,000)*$10,000= $16,000

So Cost of sub contract work = Ending Work in progress – Direct staff cost – Studio Cost Cost of sub contract work

Cost of sub contract work =$40,000-$10,000-$16,000= $14,000

That is Answer B