Question

The Modern Company builds kitchen cabinets. On January 1, 2019, one job (D42) was in progress. The order is from Dallas Apartment Corporation and was begun on December 21, 2018. Costs accumulated to date on that job are materials, $1,874; labor, $1,200; and overhead, $480. During January, the following costs were incurred in production work on Job D42 and on Jobs J01 and J02, which were started on January 5, 2019:

	Materials			Labor			Overhead				Quantity
Job D42	$	540		$	540		$	216				5
Job J01		3,800			2,400			960				8
Job J02		4,740			3,400			1,360				5

Job J01 is being manufactured for Luxery Cabinets and Job J02 is for stock.  


Manufacturing overhead is applied at the rate of 40 percent of direct labor costs. During January, actual manufacturing overhead costs of $2,826 were incurred. Job D42 was completed on January 19 and was delivered to the customer. The sales price was $9,400.

Required:

1. Prepare job order cost sheets for the three jobs. Enter the beginning balances applicable to Job D42.
2. Post the costs of the materials and labor for January to the job order cost sheets.
3. Enter the overhead amounts that should be applied to the three jobs worked on during the month on the job cost sheets.
4. Give the entry in general journal form to transfer the cost of the job completed from work in process to finished goods.
5. Compute the amount of underapplied or overapplied overhead for January. Give the entry in general journal form to transfer your result to Cost of Goods Sold.

Analyze:
If The Modern Company sold the five cabinets referenced in Job D42 to Dallas Apartment Corporation for a new total invoice price of $10,140, what gross profit amount was realized on the job? Assume that no overapplication or underapplication of overhead occurred on this job.

Answer 1

1.

	Job D42	Job J01	Job J02	Totals
Beginning Work in Process
Materials	$ 1,874	-	-	$ 1,874
Labor	1,200	-	-	1,200
Overhead	480	-	-	480
Cost of Beginning Work in Process	$ 3,554	-	-	$ 3,554
Costs incurred during January
Materials	540	3,800	4,740	9,080
Labor	540	2,400	3,400	6,340
Overheads	216	960	1,360	2,536
Total Manufacturing Costs	1,296	7,160	9,500	17,956
Total Cost of Work in Process	4,850	7,160	9,500	21,510
Completed and transferred out	(4,850)	-	-	(4,850)
Ending Work in Process	-	7,160	9,500	16,660

2. In the books of Modern Company:

Account Titles	Debit	Credit
Finished Goods	4,850
Work in Process		4,850

3. Underapplied overhead = $ 2,536 - $ 2,826 = $ 290.

4.

Account Titles	Debit	Credit
Cost of Goods Sold	290
Manufacturing Overhead		290

5. Gross profit realized on Job D 42 = $ 10,140 - $ 4,850 = $ 5,290