Bowen Company manufactures one product, it does not maintain any beginning or en

Question

Bowen Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. Its predetermined overhead rate includes $1,000,000 of fixed overhead in the numerator and 50,000 direct labor-hours in the denominator. The company purchased (with cash) and used 35,000 yards of raw materials at a cost of $10.30 per yard. Its direct laborers worked 20,250 hours and were paid a total of $290,500. The company started and completed 8,600 units of finished goods during the period. Bowen's standard cost card for its only product is as follows: Standard Quantity or Standard Price or Rate Cost Direct materials Direct labor Fixed nanufacturing overhead Total standard cost per unit 3.5 yards $12.50 per yard 2.9 hours 14.00 per hour 2.9 hours $20.00 per hour 43.75 40.60 58.00 $142.3S Required: 1. When recording the raw material purchases: a. The Raw Materials inventory will increase (decrease) by how much? b. The Cash will increase (decrease) by how much? 2. When recording the raw materials used in production: a. The Raw Materials inventory will increase (decrease) by how much? b. The Work in Process inventory will increase (decrease) by how much? 3. When recording the direct labor costs added to production: a. The Work in Process inventory will increase (decrease) by how much? b. The Cash will increase (decrease) by how much? 4. When applying fixed manufacturing overhead to production, the Work in Process inventory will increase (decrease) by how much? 5. When transferring manufacturing costs from Work in Process to Finished Goods, the Finished Goods inventory will increase (decrease) by how much? a The raw materials will b. The cash will 2a. The raw materials will 2b. The work in process w 3a. The work in process wil 3b The cash will by by by by by by by 4. The work in process wil 5 The finished goods will

Explanation / Answer

SOLUTION

1. When recording the raw material purchases:

A. Raw Materials inventory will increase by $437,500 (being the standard cost of 35,000 * $12.50).

B. Cash will decrease by $360,500 (being the actual cost paid for 35,000 * $10.30)

2. When recording the raw materials used in production:

A. Raw Materials inventory will decrease by $437,500 (being the standard cost of 35,000 * $12.50)

B. Work in Process inventory will increase by $376,250 (being the standard cost of 8,600 units at 3.5 yard per unit - 30,100 * $12.50)

3. When recording the direct labor costs added to production:

A. Work in Process inventory will increase by $349,160 (being the standard cost of 8,600 units at 2.9 hours per unit - 24,940 * $14.00)

B. Cash will decrease by $290,500 (being the actual cost of 20,250 hours for $290,500)

4. Work in Process inventory will increase by $405,000

Predetermined overhead rate = Budgeted overhead / Budgeted labor hours

= $1,000,000 / 50,000 = $20 per labor hour

Overhead applied = Actual labor hours * Predetermined overhead rate

= 20,250 * $20 = $405,000

5. Finished Goods inventory will increase by $1,224,210 (being units transferred * standard costing per unit = 8,600 * $142.35).

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