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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 $15,600
Work in Process Inventory 7,000
Finished Goods Inventory 20,100

The following transactions occurred during January:
a. Purchased materials on account for $26,500.
b. Issued materials to production totaling $21,100, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
c. Payroll costs totaling $17,900 were recorded as follows:

i. $11,400 for assembly workers
ii. 1,300 for factory supervision
iii. 2,000 for administrative personnel
iv. 3,200 for sales commissions

d. Recorded depreciation: $6,000 for machines, $1,200 for the copier used in the administrative office.
e. Recorded $1,600 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
f. Paid $5,600 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 $2,300 for direct materials, $2,100 for direct labor, and $4,200 for applied overhead.
i. Sold jobs costing $51,800. The revenue earned on these jobs was $67,340.

Required:
a. 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.).

b. Determine how much gross profit the company would report during the month of January before any adjustment is made for the overhead balance.
c. Determine the amount of over- or underapplied overhead.
d. Compute adjusted gross profit assuming that any over- or underapplied overhead balance is adjusted directly to Cost of Goods Sold.

Respuesta :

anthougo

Answer:

Christopher’s Custom Cabinet Company

a. T-accounts:

                               Raw Materials Inventory

Jan. 2016 Balance b/f     $15,600        b. Work in process   $18,990

a. Purchases                     26,500        b. Factor overhead        2,110

                                                                Balance c/d            21,000

                                          42,100                                            42,100    

  Balance b/d                    21,000

                              Work in Process Inventory

Jan. 2016 Balance b/f     $7,000     Finished Goods Inventory  $51,590

b.     Raw materials          18,990     Balance c/d (materials)           2,300

c.     Direct labor               11,400     Balance c/d (labor)                   2,100

g.     Factor Overhead   22,800      Balance c/d (overhead)          4,200

                                       60,190                                                     60,190

Balance b/d (materials)   2,300

Balance b/d (labor)          2,100

Balance b/d (overhead) 4,200

                              Finished Goods Inventory

Jan. 2016 Balance b/f     $20,100  Cost of Goods Sold   20,100

                              Cost of Goods Sold

Beginning finished goods              Income Summary                        $51,800

                      inventory $20,100   Ending finished goods inventory 19,890

Work in process              51,590                                                                    

                                        71,690                                                           71,690

                              Selling, General, and Administrative Expenses

ciii. Wages & Salaries   $2,000   Income Summary           $6,400

civ. Wages & Salaries     3,200

d.   Depreciation Exp.     1,200                                                      

                                       6,400                                              6,400

                              Sales Revenue

Income Summary      $67,340    i. Accounts Receivable/Cash  $67,340

                              Cash Account

                                                          Factory overhead            5,600

                              Accounts Payable

                                                     a. Raw Materials               $26,500

                              Wages & Salaries

                                                   ci   Work in process            $11,400

                                                   cii  Factory Overhead            1,300

                                                   ciii Administrative Expense  2,000

                                                   civ Sales Commission          3,200

                              Factory Overhead

b.    Raw materials          $2,110    Work in process              22,800

cii   Wages & Salaries      1,300

d.   Depreciation Exp.     6,000

f.    Cash                         5,600

   Over-absorption        7,790                                                          

                                    22,800                                             22,800

                            Depreciation Expense

d. Acc. Depreciation- Machine  $6,000   Factory Overhead     $6,000

d. Acc. Depreciation- Admin.       1,200    Selling, & Admin.          1,200

                             Insurance Expense

e. Prepaid Insurance           $1,600    Factory Overhead          $640

                                                            Selling & Admin.               960

b. Income Summary

Sales Revenue              $67,340

Cost of goods sold          51,800

Gross profit                  $15,540

c. Factory overhead           $15,010

   Allocated cost                22,800

   over-applied overhead  $7,790

d. Income Summary

Sales Revenue                                $67,340

Cost of goods sold (51,800 -7,790)  44,010

Gross profit                                    $23,330

Explanation:

a. T-accounts are accounting tools used to determine missing figures and to adjust entries in the accounts.

b. Overheads are over-applied when the applied cost is more than the actual cost incurred based on standard rates.  They are under-applied when the applied cost is less than the actual cost incurred.

c. The work-in process balance should be one item, but for the requirement of this question.

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