Question

Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its job cost sheet reports direct materials of $6,000, direct labor of $2,800, and applied overhead of $2,240. Custom Cabinetry applies overhead at the rate of 80% of direct labor cost. During July, Job 120 is sold (on account) for $22,000, Job 121 is started and completed, and Job 122 is started and still in process at the end of the month. Custom Cabinetry incurs the following costs during July.
July Product Costs Job 120 Job 121 Job 122 Total
Direct materials $1,000 $6,000 $2,500 $9,500
Direct labor 2,200 3,700 2,100 8,000
Overhead applied ? ? ? ?
1. Prepare journal entries for the following transactions and events a through e in July.
a. Direct materials used in production.
b. Direct labor used in production.
c. Overhead applied.
d. The sale of Job 120.
e. Cost of goods sold for Job 120.
2. Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts.

Answer 1

Answer:

Custom Cabinetry

Journal Entries:

a. Debit Work in Process:

Job 120 $1,000

Job 121 $6,000

Job 122 $2,500

Credit Materials $9,500

To record the materials used in production.

b. Debit Work in Process:

Job 120 $2,200

Job 121 $3,700

Job 122 $2,100

Credit Payroll $8,000

To record the direct labor used in production.

c. Debit Work in Process:

Job 120 $1,760

Job 121 $2,960

Job 122 $1,680

Credit Manufacturing Overhead $6,400

To record the overhead applied (80% of direct labor cost).

d. Debit Cash $22,000

Credit Sales Revenue $22,000

To record the sale of Job 120.

e. Debit Cost of goods sold $16,000

Credit Finished Goods $16,000

To record the cost of Job 120 sold.

2. July 31 Balances of Work in Process Inventory and the Finished Goods Inventory:

Work in Process:

Job 122 $6,280

Finished Goods Inventory:

Job 121 $12,660

Explanation:

a) Data and Calculations:

June 30, Job 120 in Process:

Direct materials = $6,000

Direct labor             2,800

Overhead               2,240

Overhead rate = 80% of direct labor cost

July:

Sale of Job 120 = $22,000

Costs incurred during July:

Product Costs       Job 120       Job 121      Job 122     Total

Direct materials     $1,000        $6,000     $2,500   $9,500

Direct labor             2,200           3,700        2,100     8,000

Overhead applied   1,760           2,960        1,680     6,400

Job Sheets:

Product Costs       Job 120       Job 121      Job 122       Total

Beginning WIP      $11,040                                            $11,040

Direct materials       1,000        $6,000     $2,500         9,500

Direct labor             2,200           3,700        2,100         8,000

Overhead applied   1,760           2,960        1,680         6,400

Total costs          $16,000       $12,660     $6,280    $34,940