The Bright Lamp Company has budgeted its conversion cost for the small lamp prod

Question

The Bright Lamp Company has budgeted its conversion cost for the small lamp production as $85,000 for 1,300 production hours. Each unit produced by the cell requires 15 minutes of process time. During the month, 3,800 units are manufactured in the cell. The estimated material cost is $18 per unit. Provide the following journal entries. In your computations, round per unit cost to two decimal places and use rounded amount in subsequent calculations. If required, round your final answers to the nearest dollar. a. Materials are purchased to produce 4,000 units. Raw and In Process Inventory 72,000 Accounts Payable 72,000 b. Conversion costs are applied to 3,800 units of production. Raw and In Process Inventory Conversion Costs c. 3,650 units are placed into finished goods. Finished Goods Inventory Accounts Receivable

Explanation / Answer

(a).

S.No.

Accounts Titles & Explanation

Debit

Credit

(a).

Inventory (4000 * $18)

$72000

     Accounts payable

$72000

(For recording purchase of materials)

(b).

S.No.

Accounts Titles & Explanation

Debit

Credit

(b).

Work in process (850 * $65.38)

$62111

     Conversion cost or manufacturing overheads

$62111

(For recording conversion costs)

Working Note;

1. Predetrmined overhead rate ($85000 / 1300) = $65.38 per hour.

2. Total hours required for manufacturing 3800 units (3800 * 15 / 60) = 950 hours

(c).

S.No.

Accounts Titles & Explanation

Debit

Credit

(c).

Finished goods inventory (850 * $65.38)

$125359

     Work in process

$125359

(For recording transfering to finished inventory)

Working Note;

Cost of 3650 units will be calculated as follow;

1. Direct materials cost for 3650 units (3650 * $18) = $65700

2. Total hours required for manufacturing 3650 units (3650 * 15 / 60) = 912.50 hours

3. Conversion cost for 3650 units (912.50 * $65.38) = $59659 (Approx.)

4. Thus total cost of 3650 units ($65700 + $59659) = $125359

S.No.

Accounts Titles & Explanation

Debit

Credit

(a).

Inventory (4000 * $18)

$72000

     Accounts payable

$72000

(For recording purchase of materials)

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