Christopher’s Custom Cabinet Company uses a job order cost system with overhead

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 $ 15,500 Work in Process Inventory 5,700 Finished Goods Inventory 21,000 The following transactions occurred during January: (a) Purchased materials on account for $27,500. (b) Issued materials to production totaling $20,700, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials. (c) Payroll costs totaling $18,500 were recorded as follows: $11,700 for assembly workers 1,800 for factory supervision 2,600 for administrative personnel 2,400 for sales commissions (d) Recorded depreciation: $4,200 for machines, $600 for the copier used in the administrative office. (e) Recorded $1,500 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense. (f) Paid $4,500 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 $2,500 for direct materials, $2,500 for direct labor, and $5,000 for applied overhead. (i) Sold jobs costing $51,700. The revenue earned on these jobs was $67,210. 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.) Raw Materials Inventory. Work in Process Inventory. Finished Goods Inventory. Cost of Goods Sold. Selling, General, 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 balance is adjusted directly to Cost of Goods Sold.

Explanation / Answer

1.

2. Unadjusted Gross Profit: $15390

Sales revenue $67210 - Unadjusted Cost of goods sold $51700 = $15510

3. Manufacturing Overhead Overapplied $10230

Overhead incurred $13170 - Overhead applied $23400 = Overhead overapplied $10230

4. Adjusted Gross Profit: $25740

Sales revenue $67210 - Adjusted Cost of goods sold ($51700 - $10230) = $67210 - $41470 = $25740

Raw Materials Inventory Work in Process Inventory Beg. Bal. 15500 Beg. Bal. 5700 (a) 27500 18630 (b) (b) 18630 49430 (h) 2070 (b) (c) 11700 End. Bal. 22300 (g) 23400 End. Bal. 10000 Finished Goods Inventory Cost of Goods Sold Beg. Bal. 21000 Beg. Bal. (h) 49430 51700 (i) (i) 51700 End. Bal. 18730 End. Bal. 51700 Manufacturing Overhead Selling, General, and Administative Expenses Beg. Bal. Beg. Bal. (b) 2070 23400 (g) (c) 2600 (c) 1800 (c) 2400 (d) 4200 (d) 600 (e) 600 (e) 900 (f) 4500 End. Bal. 6500 End. Bal. 10230 Sales Revenue Other Accounts Beg. Bal. (Cash, Payables, etc.) 67210 (i) Beg. Bal. (i) 67210 27500 (a) End. Bal. 67210 18500 (c) 4800 (d) 1500 (e) 4500 (f) End. Bal. 10410

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