Reference no: EM132632143

Bowen Bridge Company constructs bridges for the State of Kentucky. During 2015, Bowen started work on three bridges. The cost of materials and labor for each bridge follows:

Special Orders                    Materials                         Labor

Bridge 305                           $407,200                 $352,700

Bridge 306                          $362,300                $375,000

Bridge 307                           $801,700                  $922,800

The predetermined overhead rate is $1.20 per direct labor dollar. Actual overhead costs were $2,170,800. Bridge 306 was completed for a contract price of $1,357,000 and was turned over to the state. Construction on Bridge 305 was also completed but the state had not yet finished its inspection process. General selling and administrative expenses amounted to $210,000. Over- or underapplied overhead is closed directly to the Cost of Goods Sold account. The company recognizes revenue when it turns over a completed bridge to a customer.

Required

Problem a.

(1) Determine the cost of construction for Bridge 305.

(2) Determine the cost of construction for Bridge 306.

(3) Determine the cost of construction for Bridge 307.

Problem b. Select a spokesperson from each section. Use input from the three spokespersons to prepare an income statement and the asset section of the balance sheet.

Problem c. Does the net income accurately reflect the profitability associated with Bridge 306? Explain.

Problem d. Would converting to a process costing system improve the accuracy of the amount of reported net income? Explain.