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PA2-5 Recording Manufacturing Costs and Analyzing Manufacturing
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Christopher?s 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 $ 25,000
Work in Process Inventory   55,000
Finished Goods Inventory   60,000

 

The following transactions occurred during April:
(a) Purchased materials on account at a cost of $136,000.
(b) Requisitioned materials at a cost of $122,000, of which $28,000 was for general factory use.
(c) Recorded factory labor of $155,000, of which $24,000 was indirect.
(d) Incurred other costs:



PA2-5 Recording Manufacturing Costs and Analyzing Manufacturing Overhead [LO 2-3,

 

2-4, 2-5]

 

-2-2

 


 

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Christopher?s 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

 


 

$ 25,000

 


 

Work in Process Inventory

 


 

55,000

 


 

Finished Goods Inventory

 


 

60,000

 


 

The following transactions occurred during April:

 

(a) Purchased materials on account at a cost of $136,000.

 

(b) Requisitioned materials at a cost of $122,000, of which $28,000 was for general factory use.

 

(c) Recorded factory labor of $155,000, of which $24,000 was indirect.

 

(d) Incurred other costs:

 


 

Selling expense

 


 

$44,000

 


 

Factory utilities

 


 

26,000

 


 

Administrative expenses

 


 

15,000

 


 

Factory rent

 


 

30,000

 


 

Factory depreciation

 


 

24,000

 


 

The following transactions occurred during January:

 


 

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

 

(b) Issued materials to production totaling $40,000, 80 percent of which was traced to specific

 

jobs and the remainder of which was treated as indirect materials.

 

(c) Payroll costs totaling $69,700 were recorded as follows:

 

$18,000 for assembly workers

 

5,200 for factory supervision

 

31,000 for administrative personnel

 

15,500 for sales commissions

 

(d) Recorded depreciation: $8,500 for machines, $2,400 for the copier used in the administrative

 

office.

 

(e) Recorded $4,000 of expired insurance. Forty percent was insurance on the manufacturing

 

facility, with the remainder classified as an administrative expense.

 

(f) Paid $7,800 in other factory costs in cash.

 

(g) Applied manufacturing overhead at a rate of 300 percent of direct labor cost.

 

(h) Completed all jobs but one; the job cost sheet for this job shows $10,000 for direct materials,

 

$3,000 for direct labor, and $9,000 for applied overhead.

 

(i) Sold jobs costing $70,000. The revenue earned on these jobs was $91,000.

 


 

Required:

 

1. Set up T-accounts, record the beginning balances, post the January transactions, and compute

 

the final balance for the following accounts: (Post all amounts separately. Do not combine/add

 

any dollar amounts when posting to the T-accounts.)

 

a. Raw Materials Inventory.

 

b. Work in Process Inventory.

 

c. Finished Goods Inventory.

 

d. Cost of Goods Sold.

 

e. Selling, General, and Administrative Expenses.

 

f. Sales Revenue.

 

g. Other accounts (Cash, Payables, etc.).

 


 

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2. Determine how much gross profit the company would report during the month of January

 

before any adjustment is made for the overhead balance.

 


 

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3. Determine the amount of over- or underapplied overhead.

 


 

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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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