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 2018 follow:

Raw Materials Inventory	$	16,100
Work in Process Inventory		6,600
Finished Goods Inventory		21,700

The following transactions occurred during January:

(a) Purchased materials on account for $27,200.
(b) Issued materials to production totaling $20,900, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
(c) Payroll costs totaling $18,900 were recorded as follows:
    $11,400 for assembly workers
     2,900 for factory supervision
     2,600 for administrative personnel
      2,000 for sales commissions
(d) Recorded depreciation: $5,500 for factory 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 $6,000 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 the uncompleted job shows $2,300 for direct materials, $2,000 for direct labor, and $4,000 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:

1. Raw Materials Inventory.
2. Work in Process Inventory.
3. Finished Goods Inventory.
4. Cost of Goods Sold.
5. Manufacturing Overhead.
6. Selling, General, and Administrative Expenses.
7. Sales Revenue.

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

	Raw Materials Inventory				Work in process inventory
Beg.Bal	16,100				Beg.Bal	6,600
a)	27,200				b)	18810
		20,900	b)		c)	11,400
End bal	22,400				g)	22800
							51,310	h)
					End Bal	8300
finished goods inventory					Cost of goods sold
Beg.Bal	21,700				Beg bal
h)	51,310				i)	51,700
		51,700	i)
End bal	21,310				End bal	51,700
Manufacturing overhead					Selling ,General and Administrative expenses
Beg.Bal					Beg.Bal
b)	2090				c)	2,600
c)	2,900				c)	2,000
d)	5,500				d)	1,400
e)	800				e)	1200
f)	6,000
		22800	g)		End bal	7,200
End bal		5,510
Sales revenue					Other Accounts
Beg. Bal					(Cash ,payables, etc.)
		67,210	i)		Beg.Bal
							27,200	a)
End bal		67,210					18,900	c)
							6,900	d)
							2000	e)
							6,000	f)
					i)	67,210
					End bal	6,210
2)	Unadjusted Gross profit			15,510
3)	Manufacturing overhead			over applied		5,510
4)	Adjusted Gross profit			21,020