Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its job cost sheet reports direct materials of $8,700, direct labor of $4,200, and applied overhead of $3,570. Custom Cabinetry applies overhead at the rate of 85% of direct labor cost. During July, Job 120 is sold (on account) for $29,500, 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
Total Direct materials $2,600 $8,300 $4,100 $15,000
Direct labor 3,200 4,500 3,600 11,300
Overhead applied ? ? ? ?

1. Prepare journal entries for the following 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 general ledger accounts.

Custom Cabinetry

1. Journal Entries:

a. Debit Work in Process:

Job 120 $2,600

Job 121 $8,300

Job 122 $4,100

Credit Direct materials $15,000

To record the direct materials used in production in July.

b. Debit Work in Process:

Job 120 $3,200

Job 121 $4,500

Job 122 $3,600

Credit Payroll $11,300

To record the cost of direct labor for July.

c. Debit Work in Process:

Job 120 $2,720

Job 121 $ 3,825

Job 122 $3,060

Credit Overhead applied $9,605

To apply overhead at the rate of 85% of direct labor costs.

d. Debit Accounts Receivable $29,500

Credit Sales Revenue $29,500

To record the sale of Job 120 on account.

e. Debit Cost of goods sold $24,920

Credit Finished Goods: Job 120 $24,920

To record the cost of Job 120 sold.

2. July 31 Balances:

Work in Process Inventory = $10,760

Finished Goods Inventory $16,625

Explanation:

a) Data and Calculations:

Overhead application rate = 85% of direct labor cost

Sales price of Job 120 = $29,500

                                         Job 120    Job 121     Job 122      Total

Beginning inventory:

Direct materials              $8,700                                              $8,700

Direct labor                       4,200                                                4,200

Applied overhead             3,570                                                3,570

Total                              $16,400                                             $16,400

Costs incurred during July:

Total Direct materials $2,600        $8,300       $4,100        $15,000

Direct labor                   3,200           4,500        3,600           11,300

Overhead applied               ?                 ?                 ?                 ?

Cost of production:

                                         Job 120    Job 121     Job 122      Total

Beginning inventory:

Direct materials              $8,700                                               $8,700

Direct labor                       4,200                                                 4,200

Applied overhead             3,570                                                 3,570

Total                              $16,400                                              $16,400

Costs incurred during July:

Total Direct materials   $2,600        $8,300       $4,100        $15,000

Direct labor                     3,200           4,500        3,600           11,300

Overhead applied          2,720           3,825        3,060            9,605

Total production costs $24,920    $16,625     $10,760       $52,305

                                      Sold         Completed   In Process