Job order cost accounting for a service company
The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July:
July 3. Charged 175 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $150 per hour.
10. Reimbursed travel costs to employees for depositions related to the Obsidian case, $12,500.
14. Charged 260 hours of professional time for the Obsidian trial at a rate of $185 per hour.
18. Received invoice from consultants Wadsley and Harden for $30,000 for expert testimony related to the Obsidian trial.
27. Applied office overhead at a rate of $62 per professional hour charged to the Obsidian case.
31. Paid administrative and support salaries of $28,500 for the month.
31. Used office supplies for the month, $4,000.
31. Paid professional salaries of $74,350 for the month.
31. Billed Obsidian $172,500 for successful defense of the case.
a. Provide the journal entries for each of these transactions.
b. How much office overhead is over or underapplied?
c. Determine the gross profit on the Obsidian case, assuming that over or underapplied office overhead is closed monthly to cost of services.
