Christopher’s Custom Cabinet Company uses a job order costing system with overhead applied as a percentage of direct labor costs. Inventory balances at the beginning of 2009 follow:

The following transactions occurred during January:

(a) Purchased materials on account for \($26,000.\)

(b) Issued materials to production totaling \($22,000,\) 90 percent of which was traced to specific jobs and the remainder treated as indirect materials.

(c) Payroll costs totaling \($15,500\) were recorded as follows:

(d) Recorded depreciation: \($6,000\) for machines, \($1,000\) for office copier.

(e) Had \($2,000\) in insurance expire, allocated equally between manufacturing and administrative expenses.

(f) Paid \($6,500\) 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 \($2,100\) for direct materials, \($2,000\) for direct labor, and \($4,000\) for applied overhead.

(i) Sold jobs costing \($50,000;\) the company uses cost-plus pricing with a markup of 30 percent.

Required:

1. Set up T-accounts, record the beginning balances, post the January transactions, and compute the final balance for the following accounts:
Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturing Overhead Selling 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.

Transcribed Image Text:

Raw materials inventory Work in process inventory Finished goods inventory $15,000 5,000 20,000