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Job order costing in a manufacturing company

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Tanner Special Furniture Inc. makes custom order furniture to meet the needs of disabled persons. On January 1, 2005, the company had the following account balances: $28,000 for both cash and common stock. In 2005, Tanner Worked on three special orders. The relevant direct operating costs follow:

Direct Labor Direct Materials
Job 1 1,200 1,600
Job 2 720 560
Job 3 2,880 1,440
Total 4,800 3,600

Tanner's predetermined manufacturing overhead rate was .25 per direct labor hour. Actual manufacturing overhead costs amounted to 1286. Tanner paid cash for all costs. THe company completed and delivered jobs 1 and 2 to customers during the year. Job 3 was incomplete at the end of the year. The company sold Job 1 for 5,280 cash and Job 2 for 2,560 cash. Tanner also paid 1,200 cash for selling and administrative expenses for the year.

Tanner uses a just in time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.

A. Record the preceding events in a horizontal statements model. In the cash flows column, designate the cash flow as operating activities (OA), investing activities (IA), or financing actives (FA)

B. Record the entry to close the amount of underapplied or overapplied overhead for the year to cost of goods sold (in the expense category) in the horizontal financial statements model.

C. Determine the gross margin for the year.

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