3.1. Class activity Sweeten Company PDF

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3.1. Class activity Sweeten Company. Exercise of the professor he made us do. hd cjn j nj mkmk mk m i o p p oij ijnuucd jkxsak cmdj...

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GEI Management Accounting Course 2020-2021 1 st semester Group A1

3.1. Class activity Sweeten Company Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. It started only two jobs during March—Job P and Job Q. Job P was completed and sold by the end of the March and Job Q was incomplete at the end of the March. The company uses a plantwide predetermined overhead rate based on direct labor-hours. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March): Estimated total fixed manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . $10,000 Estimated variable manufacturing overhead per direct labor-hour . . . . . .$1.00 Estimated total direct labor-hours to be worked . . . . . . . . . . . . . . . . . . . . . 2,000 Total actual manufacturing overhead costs incurred . . . . . . . . . . . . . … . $12,500 Job P Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,000 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$21,000 Actual direct labor-hours worked . . . . . . . . . . . . . . . . . . .1,400

Job Q $8,000 $7,500 500

Required: 1. What is the company’s predetermined overhead rate? 2. How much manufacturing overhead was applied to Job P and Job Q? 3. What is the direct labor hourly wage rate? 4. If Job P includes 20 units, what is its unit product cost? What is the total amount of manufacturing cost assigned to Job Q as of the end of March (including applied overhead)? Assume the ending raw materials inventory is $1,000 and the company does not use any 5. indirect materials. Prepare the journal entries to record raw materials purchases and the issuance of direct materials for use in production. 6. Assume that the company does not use any indirect labor. Prepare the journal entry to record the direct labor costs added to production. 7. Prepare the journal entry to apply manufacturing overhead costs to production. 8. Assume the ending raw materials inventory is $1,000 and the company does not use any indirect materials. Prepare a schedule of cost of goods manufactured. Prepare the journal entry to transfer costs from Work in Process to Finished Goods. 9. 10. Prepare a completed Work in Process T-account including the beginning and ending balances and all debits and credits posted to the account. 11. Prepare a schedule of cost of goods sold. (Stop after computing the unadjusted cost of goods sold.) 12. Prepare the journal entry to transfer costs from Finished Goods to Cost of Goods Sold. 13. What is the amount of underapplied or overapplied overhead? 14. Prepare the journal entry to close the amount of underapplied or overapplied overhead to Cost of Goods Sold.

Source: Garrison-Managerial-Accounting-15th-edition 1

15.

Assume that Job P includes 20 units that each sell for $3,000 and that the company’s selling and administrative expenses in March were $14,000. Prepare an absorption costing income statement for March. Solution: 1. The estimated total manufacturing overhead cost is computed as follows: Y = $10,000 + ($1.00 per DLH)(2,000 DLHs) Y = {1:NM:=10000} + ({1:NM:=1} x {1:NM:=2000}) Estimated fixed manufacturing overhead ($) {1:NM:=10000} Estimated variable manufacturing overhead ($) {1:NM:=2000} Estimated total manufacturing overhead cost ($) {1:NM:=12000} º

$10,000 2,000 $12,000

The predetermined overhead rate is computed as follows: Estimated total manufacturing overhead ($) (a)12000} Estimated total direct labor hours (DLHs) (b) Predetermined overhead rate ($ per DLH) {(a)/(b)

$12,000 2,000 DLHs $6.00 per DLH

2. The manufacturing overhead applied to Jobs P and Q is computed as follows:

Actual direct labor hours worked (DLHs) (a){1:NM:=1400} Predetermined overhead rate per DLH (b) {1:NM:=6} Manufacturing overhead applied ($) (a x b) {1:NM:=8400}

Job P Job Q 1,400 {1:NM:=500} 500 $6.00 {1:NM:=6} $6.00 $8,400 {1:NM:=3000} $3,000

3. The direct labor hourly wage rate can be computed by focusing on either Job P or Job Q as follows:

Direct labor cost ($) (a){1:NM:=21000} Actual direct labor hours worked (DLHs) (b) Direct labor hourly wage rate ($/DLH) (a) / (b)

Job P $21,000 1,400 $15.00

Job Q $7,500 500 $15.00

4. Job P’s unit product cost and Job Q’s assigned manufacturing costs are computed as follows: Total manufacturing cost assigned to Job P: Direct materials ($) Direct labor ($) Manufacturing overhead applied ($) ($6 per DLH × 1,400 DLHs) Total manufacturing cost ($)

$13,000 21,000 8,400 $42,400

Unit product cost for Job P: Total manufacturing cost ($) (a) Number of units in the job (b) Unit product cost ($) (a/b)

$42,400 20 $2,120

GEI Management Accounting Course 2020-2021 1 st semester Group A1

3.1. Class activity Sweeten Company Total manufacturing cost assigned to Job Q: Direct materials ( $) Direct labor ($) Manufacturing overhead applied ($) ($6 per DLH × 500 DLHs) Total manufacturing cost ($)

$ 8,000 7,500 3,000 $18,500

5. The journal entries are recorded as follows: Raw Materials ....................................... Accounts Payable..................................

22,000

Work in Process .................................... Raw Materials .......................................

21,000

22,000

21,000

6. The journal entry is recorded as follows: Work in Process ......................... Wages Payable...........................

28,500 28,500

7. The journal entry is recorded as follows: Work in Process.......................................... Manufacturing Overhead ...........................

11,400 11,400

8. The Schedule of Cost of Goods Manufactured is as follows: Direct materials: Raw materials inventory, beginning Add: Purchases of raw materials Total raw materials available Deduct: Raw materials inventory, ending Raw materials used in production (13,000 + 8,000) Direct labor (21,000 + 7,500) Manufacturing overhead applied to work in process inventory (8,400 + 3,000) Total manufacturing costs Add: Beginning work in process inventory

$ 0 22,000 22,000 1,000

Deduct: Ending work in process inventory Cost of goods manufactured

Source: Garrison-Managerial-Accounting-15th-edition 3

$21,000 28,500 11,400 60,900 0 60,900 18,500 $42,400

9. The journal entry is recorded as follows: Finished Goods ........................................... Work in Process..........................................

42,400 42,400

10. The completed T-account is as follows: Work in Process Beg. Bal.

0

Raw material used in production

21,000

Direct labor cost

28,500

Manufacturing overhead applied

Cost of goods 11,400 manufactured

End. Bal.

18,500

42,400

11. The Schedule of Cost of Goods Sold is as follows: Finished goods inventory, beginning Add: Cost of goods manufactured Cost of goods available for sale Deduct: Finished goods inventory, ending Unadjusted cost of goods sold

$ 0 42,400 42,400 0 $42,400

12. The journal entry is recorded as follows: Cost of Goods Sold...................................... Finished Goods ...........................................

42,400 42,400

13. The amount of underapplied overhead is computed as follows: Actual direct labor- hours (1,400 + 500) Predetermined overhead rate Manufacturing overhead applied

1,900 $6.00 $11,400

Actual manufacturing overhead Deduct: Manufacturing overhead applied Under(Over)applied overhead

$12,500 11,400 $ 1,100

GEI Management Accounting Course 2020-2021 1 st semester Group A1

3.1. Class activity Sweeten Company 14. The journal entry is recorded as follows: Cost of Goods Sold...................................... Manufacturing Overhead ...........................

1,100 1,100

15. The income statement is as follows: Sales (20 x 3,000) Less, Cost of goods sold (adjusted) Gross margin Less, Selling and administrative expenses Net operating income

$60,000 43,500 16,500 14,000 $ 2,500

Source: Garrison-Managerial-Accounting-15th-edition 5

Accounts payable 22000

5.1

Wages payable 28500

6

5.1 Balance

Raw materials 21000 22000 1000

5.2

5.2 6 7 Balance

Manufacturing overhead 12500 11400 Bal unadjusted

1100 Bal adjusted

7

1100 0

10

Work in process 21000 28500 11400 18500

42400

8 8

Finished goods 42400 42400

9

9 Bal unadjusted 10 Bal adjusted

Cost of goods sold 42400 42400 1100 43500...