Lambeth Custom Cabinets (A) Jack Lambeth. a master cabinet maker, owns and operates a shop where he sells custom-made cab Inets. At the beginning of September, his business had no outstanding debt and the following amounts were on his books 900 325 650 1. Raw materials inventory, $2,150 2. Supplies inventory, 5620. 3. Work-in-process inventory, $5,650. OVERHEAD JOB MATERIALS LABOR (50N OF LABOR) A-3 $ 750 $1,100 $550 A-1 325 A-5 700 Total $1,975 $2,450 $1.225 $5,650 4. All other assets as of September 1 were $16,890. During the month, Lambeth's woodworking crew finished jobs A-3, A-4, and A-6 but did not fin- ish A-5. Job A-7 was started but not finished during September. Overhead costs (pertaining prima rily to equipment and shop depreciation, cleaning supplies, and insurance) are applied to every job at the end of the month unless the job is finished during the month, in which case overhead is applied when the job is finished. During September, the following direct materials and direct labor costs were incurred: Jos 4.3 DRECT LABOR $750 1.300 A-4 A-5 DIRECT MATERIALS $ 280 350 180 375 590 S /775 A-6 A-7 . 490 320 53.460 Other financial factors of importance pertaining to September were a. $1,675 of raw materials were purchased during the month b. Supplies of $580 were purchased while $490 were used and thus transferred to the manu facturing overhead account. 30 Chapter 4 c. Total increases to the labor general ledger account were $5,460. (Apparenty there was $2,000 indirect labor charged.) d. General and administrative expenses for the month were $3,420. c. Collections received from customers on jobs A-3, A-4, and A-6 amounted to 50,125, $8,600, and $1,750, respectively, for a total of $16,475. f. At the end of the month, Lambeth Custom Cabinets had no outstanding deos While lack was reviewing the September data he became very concerned about the manufacturing overhead variance (MOV). Since Jack never wanted to lay off an emplovee, the MOV Was always Large in months when business was slow. (Jack assigned unoccupied workers to general clean-up and repair work and charged their wages to indirect labor.) Of course, Lambeth realized why the MOV was so large. What he worried about however, was Mrs. Carter. Mrs. Carter, a neighbor, had stopped in the shop one day in early September to get a price on some cabinets she wanted built. Jack's son, Jack Ir., spoke with her. Jack Jr. was working in the shop while on summer vacation between his first and second year of graduate business school. Jack L. studied the plans that Mrs. Carter had and estimated the cost to build her cabinets at $1.625. His job esti- mation sheet showed: Lumber Finishing materials Direct labor cost Overhead $590 75 640 320 $1,625 When Tack Ir. quoted a price of $1.900 ($1,625 cost $275 profit) to Mrs. Carter, she said that she could get the same thing built by Walworth Custom Kitchens for $1,500. Furthermore, she informed Jack Jr. that, "I would throw the dumb economics books away before I would pay a penny more than $1,500 for book cabinets to store them." Jack Jr. simply told her that his best price would be $1,900. He explained all about labor, materials, profit, overhead, and competitive capitalism. In addition, he told Mrs. Carter that Walworth could- n't make money on a $1,500 price and if Walworth was really willing to build the shelves for $1,500 she would be stealing from Mr. Walworth! Mrs. Carter was very angry when she left. Jack Jr. later told his father the whole story and laughed as he said, "Heck, we can't build stuff that costs $1,625 and sell it at price of $1,600, let alone $1,500, time Lambeth didn't think much about the incident but he began to wonder whether Jack Jr. had learned anything at graduate business school. Lambeth became especially con- cerned when he saw Bob Walworth, who said, "Mrs. Carter saved me last month." It seems that Walworth had just delivered Mrs. Carter's new cabinets for which she paid $1,500. Jack Lambeth wondered who was right-Jack Jr. or Walworth? In the "#4" worksheet, prepare a Variable Costing Income Statement (sometimes called the Contribution Margin Income Statement) for the month-end of September. Lambeth Custom Cabinets (A) Jack Lambeth. a master cabinet maker, owns and operates a shop where he sells custom-made cab Inets. At the beginning of September, his business had no outstanding debt and the following amounts were on his books 900 325 650 1. Raw materials inventory, $2,150 2. Supplies inventory, 5620. 3. Work-in-process inventory, $5,650. OVERHEAD JOB MATERIALS LABOR (50N OF LABOR) A-3 $ 750 $1,100 $550 A-1 325 A-5 700 Total $1,975 $2,450 $1.225 $5,650 4. All other assets as of September 1 were $16,890. During the month, Lambeth's woodworking crew finished jobs A-3, A-4, and A-6 but did not fin- ish A-5. Job A-7 was started but not finished during September. Overhead costs (pertaining prima rily to equipment and shop depreciation, cleaning supplies, and insurance) are applied to every job at the end of the month unless the job is finished during the month, in which case overhead is applied when the job is finished. During September, the following direct materials and direct labor costs were incurred: Jos 4.3 DRECT LABOR $750 1.300 A-4 A-5 DIRECT MATERIALS $ 280 350 180 375 590 S /775 A-6 A-7 . 490 320 53.460 Other financial factors of importance pertaining to September were a. $1,675 of raw materials were purchased during the month b. Supplies of $580 were purchased while $490 were used and thus transferred to the manu facturing overhead account. 30 Chapter 4 c. Total increases to the labor general ledger account were $5,460. (Apparenty there was $2,000 indirect labor charged.) d. General and administrative expenses for the month were $3,420. c. Collections received from customers on jobs A-3, A-4, and A-6 amounted to 50,125, $8,600, and $1,750, respectively, for a total of $16,475. f. At the end of the month, Lambeth Custom Cabinets had no outstanding deos While lack was reviewing the September data he became very concerned about the manufacturing overhead variance (MOV). Since Jack never wanted to lay off an emplovee, the MOV Was always Large in months when business was slow. (Jack assigned unoccupied workers to general clean-up and repair work and charged their wages to indirect labor.) Of course, Lambeth realized why the MOV was so large. What he worried about however, was Mrs. Carter. Mrs. Carter, a neighbor, had stopped in the shop one day in early September to get a price on some cabinets she wanted built. Jack's son, Jack Ir., spoke with her. Jack Jr. was working in the shop while on summer vacation between his first and second year of graduate business school. Jack L. studied the plans that Mrs. Carter had and estimated the cost to build her cabinets at $1.625. His job esti- mation sheet showed: Lumber Finishing materials Direct labor cost Overhead $590 75 640 320 $1,625 When Tack Ir. quoted a price of $1.900 ($1,625 cost $275 profit) to Mrs. Carter, she said that she could get the same thing built by Walworth Custom Kitchens for $1,500. Furthermore, she informed Jack Jr. that, "I would throw the dumb economics books away before I would pay a penny more than $1,500 for book cabinets to store them." Jack Jr. simply told her that his best price would be $1,900. He explained all about labor, materials, profit, overhead, and competitive capitalism. In addition, he told Mrs. Carter that Walworth could- n't make money on a $1,500 price and if Walworth was really willing to build the shelves for $1,500 she would be stealing from Mr. Walworth! Mrs. Carter was very angry when she left. Jack Jr. later told his father the whole story and laughed as he said, "Heck, we can't build stuff that costs $1,625 and sell it at price of $1,600, let alone $1,500, time Lambeth didn't think much about the incident but he began to wonder whether Jack Jr. had learned anything at graduate business school. Lambeth became especially con- cerned when he saw Bob Walworth, who said, "Mrs. Carter saved me last month." It seems that Walworth had just delivered Mrs. Carter's new cabinets for which she paid $1,500. Jack Lambeth wondered who was right-Jack Jr. or Walworth? In the "#4" worksheet, prepare a Variable Costing Income Statement (sometimes called the Contribution Margin Income Statement) for the month-end of September