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	$	16,000
Work in Process Inventory		6,100
Finished Goods Inventory		20,400

The following transactions occurred during January:
(a) Purchased materials on account for $26,600.
(b) Issued materials to production totaling $20,300, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
(c) Payroll costs totaling $16,600 were recorded as follows:
    $10,400 for assembly workers
     3,000 for factory supervision
     1,600 for administrative personnel
      1,600 for sales commissions
(d) Recorded depreciation: $4,600 for machines, $500 for the copier used in the administrative office.
(e) Recorded $1,000 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
(f) Paid $6,300 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 $2,100 for direct materials, $2,200 for direct labor, and $4,400 for applied overhead.
(i) Sold jobs costing $51,200. The revenue earned on these jobs was $66,560.

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. 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

Req 1.
Raw Material inventory
Balance		16,000	Work in process		18,270
Accounts Payable		26,600	manufacturing oh		2,030
Ending Balance		22,300
MANUFACTURING OVERHEADS
Raw material		2,030	Work in process		20,800
Other Accounts		3,000	(10400*200%)
Other Accounts		6,300
Prepaid insurance		400
Accumulated dep		4,100
			Ending balance		4970
Work In process inventory
Balance		6,100	Finished Goods		46,870
Raw material Inv.		18,270	(55570-8700)
Other Accounts		10,400
Manufacturing Overheads		20,800
Balance		8,700
FINISHED GOODS INVENTORY
Balance		20,400	Cost of Goods sold		51,200
Work in process		46,870
Balance		16,070
Cost of goods sold
Balance		0
Finished goods		51,200
Balance		51,200
Selling, General and admin Overheads
Other accounts		3,200
Accumulated dep		500
Prepaid insurance		600
Balance		4,300
Other Accounts
			Work in process		10,400
			Manufacturing OH		3,000
			Selling gen admin oh		3,200
			Manufacturing OH		6200
			Balance		22800
Req 2.
Gross profit:
Sales revenue			66560
Less: Cost of goods sold			51200
Gross profit:			15360
Req 3.
Overheads incurred			15830	(Total Of debits of Overheads account)
Overheads Applied			20800
Overheads Over-applied			4970
Req 4.
Adjusted cost of goods sold:
Unadjusted cost of goods sold				51200
Less: Over-applied Overheads				-4970
Adjusted cost of goods sold:				46230
Sales revenue				66560
Adjusted Gross profit				20330