Question

Christiopher's Custom Cabinet Company uses a job...

Christopher's Custom Cabinet Company uses a job order cost system with overhead applied as a percentage of direct labor costs. Inventory balances at the beginning of 2018 follow: Raw Materials Inventory Work in Process Inventory Finished Goods Inventory $16,800 5,500 21,800 The following transactions occurred during January: (a) Purchased materials on account for $26,200. (b) Issued materials to production totaling $20,400, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials. (c) Payroll costs totaling $16,400 were recorded as follows: $11,000 for assembly workers 1,200 for factory supervision 1,600 for administrative personnel 2,600 for sales commissions (d) Recorded depreciation: $5,800 for factory machines, $500 for the copier used in the administrative office. (c) Recorded $1700 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense. (Paid $6,200 in other factory costs in cash. (9) Applied manufacturing overhead at a rate of 200 percent of direct labor cost. (h) Completed all jobs but one; the job cost sheet for the uncompleted job shows $2,400 for direct materials, $2,500 for direct labor. and $5,000 for applied overhead. Sold jobs costing $50,800. The revenue earned on these jobs was $66,040.

Answer 1

ANSWER:

Required 1) T-Accounts

Raw Materials Inventory

Beg Bal	16,800
(a)	26,200	20,400	(b)
End Bal	22,600

Work in Process Inventory

Beg Bal	5,500	46,960	(h)
(b) (20,400 * 90%)	18,360
(c) Assembly worker	11,000
(g) (200% * 11000)	22,000
End Bal	9,900

* Ending balance of work in process = 2,400 + 2,500 + 5,000 = $9,900

Finished Goods Inventory

Beg Bal	21,800	50,800	(i)
(h)	46,960
End Bal	17,960

Cost of Goods Sold

(i)	50,800
End Bal	50,800

Manufacturing Overhead

(b) (20,400 * 10%)	2,040	22,000	(g)
(c) Factory Supervision	1,200
(d)	5,800
(e) (1,700 * 40%)	680
(f)	6,200
End Bal		6,080

Selling, General and Administrative Expenses

(c) Adm	1,600
(c) Sales Comm.	2,600
(d)	500
(e) (1,700 - 680)	1,020
End Bal	5,720

Sales Revenue

		66,040	(i)
		66,040	End Bal

Required 2) Determine how much gross profit the company would report during the month of January before any adjustment is made for the overhead balance.

Unadjusted Gross profit = Sales - Cost of unadjusted goods sold

  = 66,040 - 50,800 = $15,240

Required 3) Determine the amount of over- or underapplied overhead.

In the T Account, of Manufacturing Overhead, there is credit balance of $6,080 which is over-applied overhead.

Required 4) Compute adjusted gross profit assuming that any over- or underapplied overhead balance is adjusted directly to Cost of Goods Sold.

Adjusted cost of goods sold = 50,800 - 6,080 = 44,720

Adjusted gross profit = Sales - Adjusted cost of goods sold

= 66,040 - 44,720 = $21,320