Question
Christophers Custom Cabinet Company uses a job order cost system with overhead applied as a percentage of direct labor costs. Inventory balances at the beginning
Christophers 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 $ 15,900
Work in Process Inventory 5,800
Finished Goods Inventory 20,900
The following transactions occurred during January:
(a) Purchased materials on account for $27,500.
(b) Issued materials to production totaling $21,300, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
(c) Payroll costs totaling $16,900 were recorded as follows: $11,000 for assembly workers 1,400 for factory supervision 1,500 for administrative personnel 3,000 for sales commissions
(d) Recorded depreciation: $4,100 for machines, $1,300 for the copier used in the administrative office.
(e) Recorded $1,200 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
(f) Paid $6,400 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, $2,100 for direct labor, and $4,200 for applied overhead.
(i) Sold jobs costing $51,800. The revenue earned on these jobs was $67,340.
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.
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