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During the year,the following transactions were completed; raw materials were pu

ID: 2427005 • Letter: D

Question

During the year,the following transactions were completed; raw materials were purchased on account $170,000 Raw materials were issued from the store room for used in production $180,000. Employee salaries and wages were accrued as fallows direct labor, $200,000 indirect labor, $82,000 and selling and administrative salaries, $90,000. Utility costs were incurred in the factory, 65,000. Advertising cost were incurred $100,000. Prepaid insurance expired during the year $20,000. Depreciation was recorded, $180,000(85% related to factory assets and 15% related to selling and administrative assets). Manufacturing overhead was applied to jobs at the rate of 175% of direct labor cost. Goods the cost $700,000 to manufacture according to their job cost sheets were transferred to the finished goods warhorse. Sales for the year total$1,000,0000 and were all on account. the total cost to manufacture these goods according to their job cost sheets was $ 720,000. Prepare journal entries to record the transactions for the year. Prepare T-accounts for Raw Materials, Work in process. Finished Goods, Manufacturing Overhead, and Cost of Goods Sold. Post the appropriate parts of your journal entries to these T- accounts. Computing the ending balance in each account(Don't forget to enter the beginning balances in the inventory accounts.) Is Manufacturing Overhead under applied or over applied for the year? Prepare a journal entry to close this balance to Cost of Goods Sold. Prepare an income statement for the year.(Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T- accounts you have prepared.)

Explanation / Answer

Solution:1

a. Raw material................170000

To accounts payable..............170000

b. Work in process...........144000

Manufacturing overhead....36000

To raw material.......................180000

c. work in process.............200000

Manufacturing overhead..82000

Salary expense.................90000

To salary and wages payable....372000

d. Manufacturing overhead.......65000

To accounts payable.................65000

e. Advertising expense............100000

To accounts payable.......................100000

f. Manufacturing overhead.........18000

Insurance expence...................2000

To prepaid insurance........................20000

g. Manufacturing overhead.........153000

Depreciation expense...............27000

To Accumulated depreciation..............180000

h. Work in process....................350000

To manufacturing overhead.................350000

($200,000 actual direct labor cost × 175% = $350,000 overhead applied)

i. Finished goods......................700000

To work in process..............................700000

j. accounts receivables.............1000000

To sales............................................1000000

h. Cost of goods sold...............720000

To finished goods.............................720000

Solution:2

Raw material

Work in process

Cost of goods sold

Finished goods

Manufacturing overhead

Solution:3 Overhead is underapplied by $4,000 for the year. The entry to close this balance to Cost of Goods Sold would be:

Cost of goods sold...........4000

To manufacturing overhead..........4000

Solution:4

Almeda Products, Inc.

Income Statement

For the Year Ended March 31

Sales.......................................................

$1,000,000

Less cost of goods sold ($720,000 + $4,000)

    724,000

Gross margin...........................................

276,000

Less selling and administrative expenses:

Salary expense.......................................

$ 90,000

Advertising expense................................

100,000

Insurance expense.................................

2,000

Depreciation expense..............................

  27,000

    219,000

Net operating income................................

$    57,000

Balance..............32000 180000 (a) 170000 Balance............22000