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: $ 15,200

Work in Process Inventory: 5,700

Finished Goods Inventory: 21,200

The following transactions occurred during January:

(a) Purchased materials on account for $26,800.

(b) Issued materials to production totaling $21,800, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.

(c) Payroll costs totaling $17,500 were recorded as follows: $10,200 for assembly workers 1,800 for factory supervision 2,200 for administrative personnel 3,300 for sales commissions

(d) Recorded depreciation: $4,600 for machines, $1,400 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 $4,800 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 $2,400 for direct materials, $2,200 for direct labor, and $4,400 for applied overhead.

(i) Sold jobs costing $51,300. The revenue earned on these jobs was $66,690.

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.)

a. Raw Materials Inventory.

b. Work in Process Inventory.

c.Finished Goods Inventory.

d.Cost of Goods Sold.

e. Selling, General, and Administrative Expenses.

f. Sales Revenue.

g. 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

1.a)
Raw Material Inventory A/c
Particular	Dr. Amount	Particulars	Cr. Amount
Opening	15,200	BY FG	21800
Purchase	26,800	Closing	20,200
	42,000		42000
Work in Process Inventory A/c
Particular	Dr. Amount	Particulars	Cr. Amount
Opening	5,700	BY Finished Goods	61,100
Raw Material Issued	21,800
Direct Labor-Assembly	10,200
Indirect -Factory Supervision	1,800
Manufacturing OH 200%on DL	20,400	Closing
Insurance -Manufacturing	800	Direct Material	2,400
Other Factory	4800	Direct Labour	2,200
Depreciation on Machines	4,600	OH	4,400
	70,100		70,100
Finished Goods Inventory A/c
Particular	Dr. Amount	Particulars	Cr. Amount
Opening	21,200	BY COGS	51,300
WIP	61,100
Administraive OH		Closing	35,800
Depreciation	1400
Payroll Cost	2200
Insurance	1200
	87,100		87100
Cost of Goods sold A/c
Particular	Dr. Amount	Particulars	Cr. Amount
FG	51,300	Cost of Sales	54,600
Selling OH
Sales Commision	3,300
	54,600		54,600
Cost of Sales A/c
Particular	Dr. Amount	Particulars	Cr. Amount
COGS	54,600	General Ledger Adjust	54,600
	54,600		54,600
Sales Revenue A/c
Particular	Dr. Amount	Particulars	Cr. Amount
To General Ledger Adjust	66,690	By Debtor	66,690
	66,690		66,690
Solution :2
General Ledger Adjustment A/c
Particular	Dr. Amount	Particulars	Cr. Amount
To COS	54600	By Sales Revenue	66,690
To Gross Profit	12,090
	66,690		66,690

Solution 3: - Under Applied Overhead is $4400

Solution 4: - Adjusted Gross Profit would have been 7690

=12090-4400

=7,690