Job Cost Journal Entries and T Accounts Following are certain operating data for Redwood Manufacturing Company for January 2016:
Materials Inventory Work in Process Inventory Finished Goods Inventory
Beginning inventory $40,000 $50,000 $80,000
Ending inventory 70,000 60,000 56,000
Total sales were $2,000,000, on which the company earned a 40% gross profit. Redwood uses a predetermined manufacturing overhead rate of 110% of direct labor costs. Manufacturing overhead applied was $396,000. Exclusive of indirect material used, total manufacturing overhead incurred was $300,000; it was under-applied by $24,000.
Required
Compute the following items. (Set up T accounts for Materials Inventory, Work in Process Inventory, Finished Goods Inventory, and Manufacturing Overhead; fill in the known amounts; and then use the normal relationships among the various accounts to compute the unknown amounts.)

Cost of goods sold = $1,224,000

Cost of goods manufactured = $1,200,000

Direct labor incurred  = $360,000

Direct material used  = $430,000

Indirect material used  = $96,000

Total materials purchased = $556,000

Explanation:

                                    Materials Inv.         WIP Inv.           Finished Goods Inv.

Beginning inventory      $40,000            $50,000              $80,000

Ending inventory           $70,000             $60,000              $56,000

Total sales were $2,000,000, on which the company earned a 40% gross profit.

Redwood uses a predetermined manufacturing overhead rate of 110% of direct labor costs. Manufacturing overhead applied was $396,000. Exclusive of indirect material used, total manufacturing overhead incurred was $300,000; it was under-applied by $24,000.

COGS = $2,000,000 x 60% = $1,200,000 + $24,000 of underapplied overhead = $1,224,000

COGM = COGS + ending finished goods inventory - beginning finished goods inventory = $1,224,000 + $56,000 - $80,000 = $1,200,000

Direct labor =applied overhead / predetermined overhead rate = $396,000 / 1.1 = $360,000

Direct materials = COGM - beginning WIP - overhead applied - underapplied overhead - direct labor + ending WIP = $1,200,000 - $50,000 - $396,000 - $24,000 - $360,000 + $60,000 = $430,000

Indirect materials = overhead - $300,000 = $396,000 - $300,000 = $96,000

Total materials purchased = ending materials + direct materials used + indirect materials - beginning materials = $70,000 + $430,000 + $96,000 - $40,000 = $556,000