Job costing—service industry. Michael Scott books tours for new bands and arranges to print T-shirts and produce demo CDs to sell on the tour. Scott’s agency uses a normal costing system with two direct cost pools, labor and materials, and one indirect cost pool, general overhead. General overhead is allocated to each tour at 150% of labor cost. The following information relates to the agency for June 2009.

1. As of June 1, there were tours for two bands, Grunge Express and Different Strokes in progress.

2. During June both Grunge Express and Different Strokes finished their tours.

3. New tours were started for three bands: As I Lay Dieing, Ask Me Later and Maybe Tomorrow Of these bands, only Maybe Tomorrow finished its tour by the end of June.

4. All costs incurred during the planning stage for a tour and during the tour are gathered in a balance sheet account called “Tours in Progress (TIP).” When a tour is completed, the costs are transferred to an income statement account called “Cost of Completed Tours (CCT).”

Following is cost information for June 2009:

Actual overhead in June was $2,500.

1. Calculate CCT for June.

2. Calculate under/over allocated overhead at the end of June.

3. Calculate the ending balances in TIP and CCT if the under/over allocated overhead amount is:

a. Written off to CCT

b. Prorated based on the ending balances (before proration) in TIP and CCT

c. Prorated based on the overhead allocated in June in the ending balances of TIP and CCT (before proration).

4. Which of the methods in requirement 4would you choose?

Transcribed Image Text:

From Beginning TIP Labor Incurred in June Materials Labor Band Grunge Express Different Strokes As I Lay Dieing Materials $400 300 $600 400 SO 175 S100 300 250 350 275 400 200 Ask Me Later Maybe Tomorrow 400