Question

Hello,

When attempting to access the Study Guide/Workbook to AccompanyManagerial Accounting (1st edition), I need assistance. In thet-tables, h. is showing to be $46,700. However when I read h. atthe top for given data, it reads "completed all jobs but one; thejob cost sheet for this job shows $2100 for direct materials $2000for direct labor $4100 applied overhead". Can you please help me tounderstand where the $46700 is coming from? Is there a formula? Iam trying to complete the work in process inventory and finishedgoods inventory t-tables.

Thank you in advance for your assistance.

Question:

Study Guide/Workbook to accompany Managerial Accounting (1stEdition)

Chapter 2, Problem 5PSA

Problem

Recording Manufacturing Costs and AnalyzingManufacturing Overhead

Christopher’s Custom Cabinet Company uses a job order costingsystem with overhead applied as a percentage of direct labor costs.Inventory balances at the beginning of 2009 follow:

Raw materials inventory	$15,000
Work in process inventory	5,000
Finished goods inventory	20,000

The following transactions occurred during January:

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

(b) Issued materials to production totaling $22,000, 90percent of which was traced to specific jobs and the remaindertreated as indirect materials.

(c) Payroll costs totaling $15,500 were recorded asfollows:

$10,000 for assembly workers

3,000 for factory supervision

1,000 for administrative personnel

1,500 for sales commissions

(d) Recorded depreciation: $6,000 for machines, $1,000for office copier.

(e) Had $2,000 in insurance expire, allocated equallybetween manufacturing and administrative expenses.

(f) Paid $6,500 in other factory costs in cash.

(g) Applied manufacturing overhead at a rate of 200percent of direct labor cost.

(h) Completed all jobs but one; the job cost sheet forthis job shows $2,100 for direct materials, $2,000 for directlabor, and $4,000 for applied overhead.

(i) Sold jobs costing $50,000; the company usescost-plus pricing with a markup of 30 percent.

Required:

1.Set up T-accounts, record the beginningbalances, post the January transactions, and compute the finalbalance for the following accounts:

Raw Materials Inventory

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Manufacturing Overhead

Selling and Administrative Expenses

Sales Revenue

Other accounts (Cash, Payables, etc.)

2. Determine how much gross profit the companywould report during the month of January beforeany adjustment is made for the overhead balance.

3. Determine the amount of over–or underappliedoverhead.

4. Compute adjusted gross profit assuming thatany over–or underapplied overhead balance is adjusted directly toCost of Goods Sold.

Step-by-step solution

Step 1 of 1

Req. 1

Raw Materials Inventory		Work in Process Inventory		Finished Goods Inventory
1/1 15,000	b. 22,000	1/1 5,000	h. 46,700	1/1 20,000	i. 50,000
a. 26,000		b. 19,800		h. 46,700
Bal. 19,000		c. 10,000		Bal. 16,700
		g. 20,000
		Bal. 8,100

Cost of Goods Sold	Manufacturing Overhead		Selling and Administrative Expenses
i. 50,000	b. 2,200	g. 20,000	c. 2,500
	c. 3,000		d. 1,000
	d. 6,000		e. 1,000
	e. 1,000		Bal. 4,500
	f. 6,500
		Bal. 1,300 Overapplied

Sales Revenue		Other Accounts (Cash, Payables, etc.)
	i. 65,000	i. 65,000	a. 26,000
			c. 15,500
			d. 7,000
			e. 2,000
			f. 6,500
		Bal. 8,000

Supporting Calculations:

b. Direct Materials $22,000 x 90% = $19,800;

Indirect Materials $22,000 x 10% =$2,200

c. Selling and administrative salaries = $1,000 + $1,500 =$2,500

g. Applied manufacturing overhead = $10,000 X 200% = $20,000

h. Ending Balance in WIP = $2,100 + $2,000 + $4,000 = $8,100

Cost of Goods Manufactured = $5,000 +$19,800 + $10,000 + $20,000 - $8,100 =

$46,700

i. Sales Revenue = $50,000 X 1.3 = $65,000

Req. 2

Unadjusted gross profit = $65,000 - $50,000 = $15,000

Req. 3

Manufacturing overhead is $1,300 overapplied.

Req. 4

Adjusted gross profit = $65,000 – ($50,000 - $1,300) =$16,300

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