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 $6,900, direct labor of $3,300, and applied overhead of $2,805. Custom Cabinetry applies overhead at the rate of 85% of direct labor cost. During July, Job 120 is sold (on account) for $24,000, 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	Job 120			Job 121			Job 122			Total
Direct materials	$	2,300		$	6,200		$	2,600		$	11,100
Direct labor		3,600			4,200			2,600			10,400
Overhead applied		?			?			?			?

1. Prepare journal entries for the following in July.

1. Direct materials used in production.
2. Direct labor used in production.
3. Overhead applied.
4. The sale of Job 120.
5. 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

1.

Answer:

Journal Entries

No	Account and explanation	Debit	Credit
a	Work in process	11,100
	Direct material		11,100
	(To record direct material used)
b	Work in process	10,400
	Wages payable		10,400
	(To record direct labor)
c	Work in process	8840
	Manufacturing overhead		8840
	(To record applied overhead)
d	Account receivable	24000
	sales revenue		24000
	(to record sales)
e	Cost of goods sold	21,965
	Work in process		21,965
	(To record cost of goods sold)

Calculation:

Entry#a:

Direct material used in production is the total of all Jobs. That is:

Direct material used in production = 2,300 + 6,200 + 2,600 = 11,100

Entry#b:

Direct labor used in production is the total of all jobs. That is:

Direct labor used in production = 3,600 + 4,200 + 2,600 = 10,400

Entry#c:

Overhead applied for all the jobs is 85% of  direct labor cost. That is:

Overhead applied = Direct labor cost * 85% = 10,400 * 85% = 8,840

Entry#e:

Cost of goods sold for Job 120 is the sum of all cost corresponding to Job 120.

Cost of goods sold = Direct materials + direct labor + Overhead = 6,900 + 3,300 + 2,805 + 2,300 + 3,600 + 3,600 * 85% = 21,965

2.

Answer:

	Work in process	Finished goods
Job	122	121
Direct material	2600	6200
Direct labor	2600	4200
Overhead	2210	3570
Total	7410	13970

Calculation:

Here to calculate the  July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts, we need to sum the direct materials, direct labor and overhead of both the job 122 and 121.

The direct material and labor is directly given. We need to calculate the overhead, which is 85% of direct labor.

Overhead:

Job 122: = 2600 * 85% = 2210

Job 121: = 4200 * 85% = 3570

Then, adding up all these gives the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory.