Question

The Fly Company provides advertising services for clients across the nation. The Fly Company is presently working on four projects, each for a different client. The Fly Company accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 60% of media purchases.

On August 1, the four advertising projects had the following accumulated costs:

	August 1 Balances
Vault Bank	$55,200
Take Off Airlines	16,600
Sleepy Tired Hotels	38,600
Tastee Beverages	23,700
Total	$134,100

During August, The Fly Company incurred the following direct labor and media purchase costs related to preparing advertising for each of the four accounts:

	Direct Labor		Media Purchases
Vault Bank	$36,300		$140,900
Take Off Airlines	16,200		123,900
Sleepy Tired Hotels	71,400		90,500
Tastee Beverages	81,400		67,700
Total	$205,300		$423,000

At the end of August, both the Vault Bank and Take Off Airlines campaigns were completed. The costs of completed campaigns are debited to the cost of services account.

Answer 1

Answer-

	A Aug, 1 Balance	B Direct Labor	C Media Purchases	D=60% of C Overhead	E=A+B+C+D Completion Cost
Vault Bank	$55,200	$36,300	$140,900	$84,540	$316,940
Take Off Airlines	16,600	16,200	123,900	74,340	$231,040
Sleepy Tired Hotels	38,600	71,400	90,500	54,300
Tastee Beverages	23,700	81,400	67,700	40,620
Total	$134,100	$205,300	$423,000	$253,800	$547,980

Journal Entries

Date	General Description	Debit	Credit
Aug-31	Work in process	$205,300
	Wages payable		$205,300
Aug-31	Work in process	$423,000
	Accounts Payable		$423,000
Aug-31	Work in Process ($423,000*60%)	$253,800
	Agency Overhead		$253,800
Aug-31	Cost of services	$547,980
	work in process		$547,980

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