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:

The following transactions occurred during January:
(a) Purchased materials on account for$26,200.

(b) Issued materials to production totaling $21,000, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
(c) Payroll costs totaling $15,300 were recorded as follows:
    $10,300 for assembly workers
     2,100 for factory supervision
     1,300 for administrative personnel
      1,600 for sales commissions
(d) Recorded depreciation: $5,000 for machines, $700 for the copier used in the administrative office.
(e) Recorded $1,400 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
(f) Paid $5,500 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 $2,400 for direct materials, $2,400 for direct labor, and $4,800 for applied overhead.
(i) Sold jobs costing $51,900. The revenue earned on these jobs was $67,470.

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 $ 16,000 Work in Process Inventory 5,600 Finished Goods Inventory 20,100 Raw Materials Inventory Work in Process Inventory Beg. Bal Beg. Bal End. Bal End. Bal Finished Goods Inventory Cost of Goods Sold Beg. Bal Beg. Bal End. Bal End. Bal Manufacturing Overhead Selling, General, and Administrative Expenses Beg. Bal Beg. Bal End. Bal End. Bal Sales Revenue Other Accounts Beg. Bal (Cash, Payables, etc.) Beg. Bal End. Bal

Explanation / Answer

Raw Materials inventory

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Manufacturing Overhead

Selling General and Administrative Expenses

Sales Revenue

2. Unadjusted Gross Profit: $ 11,130

Unadjusted gross profit = Sales Revenue - Unadjusted Cost of Goods Sold - Selling and Administrative Expenses = $ ( 67,470 - 51,900 - 4,440) = $ 11,130

3. Manufacturing Overhead Overapplied : $ 5,340.

4. Adjusted Gross Profit = $ 11,130 + $ 5,340 = $ 16,470

Beginning balance 16,000 Work in Process Inventory 18,900 Accounts Payable 26,200 Manufacturing Overhead 2,100 Ending balance 21,200

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