PB2-5

Recording Manufacturing Costs and Analyzing Manufacturing Overhead

Hamilton Custom Cabinet Company uses a job order cost system with overhead applied based on direct labor cost. Inventory balances at the beginning of 2016 follow:

The following transactions occurred during January:

1. Purchased materials on account for $42,000.
2. Issued materials to production totaling $45,000, 85 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
3. Payroll costs totaling $30,000 were recorded as follows:
   • $17,300 for assembly workers
   • 8,400 for factory supervision
   • 2,500 for administrative personnel
   • 1,800 for sales commissions
4. Recorded depreciation: $9,000 for machines and $25,000 for the copier used in the administrative office.
5. Recorded $9,000 of expired insurance. Sixty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
6. Paid $7,900 in other factory costs in cash.
7. Applied manufacturing overhead at a rate of 200 percent of direct labor cost.
8. Completed all jobs but one; the job cost sheet for this job shows $18,000 for direct materials, $7,000 for direct labor, and $14,000 for applied overhead.
9. Sold jobs costing $40,000 during the period; the company adds a 25 percent markup on cost to determine the sales price.

Required:

1. Set up T-accounts, record the beginning balances, post the January transactions, and compute the final balance for the following accounts:
   1. Raw Materials Inventory.
   2. Work in Process Inventory.
   3. Finished Goods Inventory.
   4. Cost of Goods Sold.
   5. Manufacturing Overhead.
   6. Selling, General, and Administrative Expenses.
   7. Sales Revenue.
   8. Other accounts (Cash, Payables, etc.).
2. Determine how much gross profit the company would report during the month of Januarybeforeany adjustment is made for the overhead balance. Page 96
3. Determine the amount of over- or underapplied overhead.
4. Compute adjusted gross profit assuming that any over- or underapplied overhead is adjusted directly to Cost of Goods Sold.