Heather’s Holiday Styles has been busy in the month of November! It seems Heather’s marketing efforts have paid off, as she has answered many calls to help decorate homes for the upcoming holidays. The company carries an inventory of decorative items in its store and then installs them in creative and fun ways. The MOH costs are fairly low, since the company has just a small space to hold the inventory. The applied MOH rate is $10 per direct labor hour. As of November 30, the company carries the following balances in its inventory accounts. DM Inventory $5,500 WIP Inventory 7,250 FG Inventory 0 During December, the following events occurred. Purchased direct materials costing $14,000 on account. Used $18,600 of direct materials for jobs. Paid direct labor wages for 120 hours of labor ($25/hr). Applied MOH cost to jobs. Actually incurred $1,400 in MOH costs. Completed all jobs by the end of the month. Billed clients $40,000 for jobs completed. Closed under- or overapplied MOH using the direct write-off method. Required 1. Calculate the ending balances in all inventory accounts as of December 31. 2. Prepare the journal entry to write off any under- or overapplied MOH directly to COGS. 3. Determine the company’s total cost of goods completed and COGS in December. 4. How much gross margin did the company earn in December? If Heather had a goal of earning a 35% gross margin, did she reach her goal? Identify at least four things Heather could consider in order to improve her gross margin on similar jobs next month.
Heather’s Holiday Styles has been busy in the month of November! It seems Heather’s marketing efforts have paid off, as she has answered many calls to help decorate homes for the upcoming holidays. The company carries an inventory of decorative items in its store and then installs them in creative and fun ways. The MOH costs are fairly low, since the company has just a small space to hold the inventory. The applied MOH rate is $10 per direct labor hour.
As of November 30, the company carries the following balances in its inventory accounts.
DM Inventory $5,500
WIP Inventory 7,250
FG Inventory 0
During December, the following events occurred.
Purchased direct materials costing $14,000 on account.
Used $18,600 of direct materials for jobs.
Paid direct labor wages for 120 hours of labor ($25/hr).
Applied MOH cost to jobs.
Actually incurred $1,400 in MOH costs.
Completed all jobs by the end of the month.
Billed clients $40,000 for jobs completed.
Closed under- or overapplied MOH using the direct write-off method.
Required
1. Calculate the ending balances in all inventory accounts as of December 31.
2. Prepare the
3. Determine the company’s total cost of goods completed and COGS in December.
4. How much gross margin did the company earn in December? If Heather had a goal of earning a 35% gross margin, did she reach her goal? Identify at least four things Heather could consider in order to improve her gross margin on similar jobs next month.
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