Art's Custom Cabinetry manufactures and installs custom cabinetry built to customer specifications. The prices of cabinets depend on the quality of the lumber selected by the customers and the complexity of designs.

The company is owned and operated by Art Bruce. Five years ago, he started the company in his garage. Over the five years, Art invested heavily in special equipment. Art assigns job numbers by customer name. The only job still in process at the end of 2004 was for Clara Cummins. That job had been charged with direct materials of \(\$ 750\), direct labor of \(\$ 1,000\), and overhead of \(\$ 250\).

Art is the sole employee of his company. He works an average of 2,800 hours a year and pays himself \(\$ 20\) an hour. Art bids on all jobs in his spare time and feels his overhead rate has kept him from obtaining some of the jobs he has bid on.

A summary of activity for January is as follows:

The Kyle Smith job was completed during January and billed at cost plus \(10 \%\). All other jobs are still in process at the end of the month.
\section*{Required}
A. Assume the overhead allocation rate for 2005 is \(\$ 5\) per labor hour. Calculate the total costs for each of the jobs Art worked on during January.
B. Calculate the balance of the company's work-in-process inventory account as of January 31,2005 . Which jobs are reflected in that balance?
C. Calculate the cost of goods sold in January 2005.
D. Calculate the unit profit margin that the company earned from jobs completed in January.
E. If the primary overhead cost was an electric bill from running Art's machines, is an overhead allocation based on direct labor a good allocation method or should another allocation method be used? Explain.

Transcribed Image Text:

Job Clara Cummins Direct Materials Direct Labor Cost Direct Labor Hours $ 600 $ 800 40 John Ryan 1,200 1,000 50 Kyle Smith 750 700 35 Ken Woods 950 600 30