Question

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 2016 follow:

Raw Materials Inventory	$	15,800
Work in Process Inventory		6,300
Finished Goods Inventory		20,300

The following transactions occurred during January:
(a) Purchased materials on account for $27,900.
(b) Issued materials to production totaling $20,600, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
(c) Payroll costs totaling $18,100 were recorded as follows:
    $11,600 for assembly workers
     1,700 for factory supervision
     1,600 for administrative personnel
      3,200 for sales commissions
(d) Recorded depreciation: $5,800 for machines, $1,000 for the copier used in the administrative office.
(e) Recorded $2,000 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
(f) Paid $5,200 in other factory costs in cash.
(g) Applied manufacturing overhead at a rate of 200 percent of direct labor cost.
(h) Completed all jobs but one; the job cost sheet for this job shows $2,200 for direct materials, $2,300 for direct labor, and $4,600 for applied overhead.
(i) Sold jobs costing $50,400. The revenue earned on these jobs was $65,520.

Required:
1. Set up T-accounts, record the beginning balances, post the January transactions, and compute the final balance for the following accounts: (Post all amounts separately. Do not combine/add any dollar amounts when posting to the t-accounts.)

1. Raw Materials Inventory.
2. Work in Process Inventory.
3. Finished Goods Inventory.
4. Cost of Goods Sold.
5. Selling, General, and Administrative Expenses.
6. Sales Revenue.
7. Manufacturing Overhead
8. Other accounts (Cash, Payables, etc.).

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

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

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

Answer 1

Solution Taccounts Raw Materials inventory selling, adm exp 2. unadjusted Gross profit sales revenue COGS 15,120 15,800 20,600 b begbal 65520-5 1,600 27,900 3,200 1,000 end bal manufacturing overhe ad incurred 23,100 e-2000*0.6 1,200 indirect material 2,060 work in in Process inventory cutting 6,300 50,540 h end bal 7,000 factory supervision 1,700 begbal depreciation on mahcine 5,800 b (20600*0.9 surance (1600*4) other factory cost 18,540 800 ales revenuc 11,600 65,520 i 5, 200 manufacturing overhead incurred 11600*200% 23,200 15,560 manufacturing overhe ad applied end bal 23,200 65,520 overhead ove rapplied (23200-15 end bal (h)* 9,100 7,640 -2200+2300+4600 Finished Goods inventory other accounts 4. adjusted Gross profit sales revenue adjusted COGS 22,760 20,300 50,400 begba 65,520 27,900 a 65520-(50400 50,540 18,100 | C 5,800 end bal 1,000 d 20,440 2,000 e 5,200 f Cost of Goods Sold end bal 5,520 50,400 Manufacturing overhead end bal b-20600 0.10 2,060 23,200 50,400 1,700 5,800 e-2000*0.4 800 5,200 end bal 7,640