Recording Manufacturing Costs and Analyzing Manufacturing OverheadCarrington Custom Cabine...

Recording Manufacturing Costs and Analyzing Manufacturing Overhead

Carrington Custom Cabinet Company uses a job order costing system with overhead applied based on direct labor cost. Inventory balances at the beginning of 2009 follow:

The following transactions occurred during January:

(a)Purchased materials on account for $40,000.

(b)Issued materials to production totaling $30,000, 80 percent of which was traced to specific jobs and the remainder treated as indirect materials.

(c)Payroll costs totaling $25,500 were recorded as follows:

$15,000 for assembly workers

6,000 for factory supervision

2,000 for administrative personnel

2,500 for sales commissions

(d)Recorded depreciation: $5,000 for machines, $2,000 for office copier.

(e)Had $4,000 in insurance expire; allocated equally between manufacturing and administrative expenses.

(f)Paid $8,500 in other factory costs in cash.

(g)Applied manufacturing overhead at a rate of 150 percent of direct labor cost.

(h)Completed all jobs but one; the job cost sheet for this job shows $7,000 for direct materials, $6,000 for direct labor, and $9,000 for applied overhead.

(i)Sold jobs costing $60,000 during the period; the company uses cost–plus pricing with a markup of 35 percent.

Required:

1. Set up T–accounts, record the beginning balances, post the January transactions, and compute the final balance for the following accounts:

Raw Materials Inventory

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Manufacturing Overhead

Selling and Administrative Expenses

Sales Revenue

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 is adjusted directly to Cost of Goods Sold.