Question

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 $ 15,700 Work in Process Inventory 6,100 Finished Goods Inventory 22,000 The following transactions occurred during January: (a) Purchased materials on account for $26,100. (b) Issued materials to production totaling $20,800, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials. (c) Payroll costs totaling $17,300 were recorded as follows: $10,100 for assembly workers 1,300 for factory supervision 2,900 for administrative personnel 3,000 for sales commissions (d) Recorded depreciation: $4,700 for machines, $700 for the copier used in the administrative office. (e) Recorded $1,400 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense. (f) Paid $5,600 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 $2,300 for direct materials, $2,200 for direct labor, and $4,400 for applied overhead. (i) Sold jobs costing $50,900. The revenue earned on these jobs was $66,170. 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.) Raw Materials Inventory. Work in Process Inventory. Finished Goods Inventory. Cost of Goods Sold. Selling, General, 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.