Question

Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its job cost sheet reports direct materials of $7,500, direct labor of $3,300, and applied overhead of $2,970. Custom Cabinetry applies overhead at the rate of 90% of direct labor cost. During July, Job 120 is sold (on account) for $23,500, Job 121 is started and completed, and Job 122 is started and still in process at the end of the month. Custom Cabinetry incurs the following costs during July. July Product Costs Direct materials Direct labor Overhead applied Job 120 $2,700 2,300 Job 121 $8,900 5,500 Job 122 $3,000 2,700 Total $14,600 10,500 1. Prepare journal entries for the following in July a. Direct materials used in production. b. Direct labor used in production. c. Overhead applied. d. The sale of Job 120. e. Cost of goods sold for Job 120. 2. Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts. (Assume there are no jobs in Finished Goods Inventory as of June 30.)

Answer 1

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Custom Cabinetry
Calculation of Overhead cost applied in July	Amount $	Note		Note
Total labor cost in July	10,500.00	A
Overhead rate	90%	B
Overhead amount	9,450.00	C=A*B
Calculation of cost of goods sold for Job 120
	June	July	Total
Direct Materials	7,500.00	2,700.00	10,200.00
Direct Labor	3,300.00	2,300.00	5,600.00
Manufacturing Overhead	2,970.00	2,070.00	5,040.00	Manufacturing Overhead for July is 90% of direct labor of July i.e. $ 2,300*90%= $ 2,070.
Cost of goods sold			20,840.00	D
Journal Entry
Transaction	General Journal	Debit $	Credit $
1	Work In Process	14,600.00
	Direct Materials		14,600.00
	(Being direct material used in production.)
2	Work In Process	10,500.00
	Direct Labor		10,500.00
	(Being direct labor used in production.)
3	Work In Process	9,450.00		See Note C
	Manufacturing Overhead		9,450.00
	(Being manufacturing overhead used in production.)
4	Accounts Receivable	23,500.00
	Sales		23,500.00
	(Being Job 120 sold on account.)
5	Cost of goods sold	20,840.00
	Work In Process		20,840.00	See Note D
Calculation of Work In Process and Finished Goods
	Work In Process	Finished Goods
	Job 122	Job 121
Direct Materials	3,000.00	8,900.00
Direct Labor	2,700.00	5,500.00
Manufacturing Overhead	2,430.00	4,950.00	Manufacturing Overhead for July is 90% of direct labor of July i.e. $ 2,700*90% = $ 2,430 and $ 5,500*90%= $ 4,950.
Total	8,130.00	19,350.00