Baxley Products manufactures office furniture by using an assembly-line process.
ID: 2539662 • Letter: B
Question
Baxley Products manufactures office furniture by using an assembly-line process. All direct materials are introduced at the start of the process, and conversion cost is incurred evenly throughout manufacturing.
It uses absorption costing for financial performance evaluation and applies overhead based on machine-hours. Data concerning manufacturing overhead (MOH) incurred machine hours (MH) used for the last seven years follow. Currently, Baxley is using weighted-average method of process costing.
Year
Plant-wide MOH$
Machine Hours Used
2011
$245,800
16,380
2012
$246,250
16,250
2013
$354,820
16,320
2014
$353,800
27,200
2015
$302,700
28,200
2016
$276,400
22,400
2017
$254,200
19,600
It has a practical capacity of 20,000 MH per year. It’s normal capacity is estimated to be 18,000 MH.
An examination of the company's Work-in-Process account for August revealed the following selected information:
August 1 balance: 600 units, 40% complete; cost, $44,600*
Production started: 1,800 units
Direct materials used during August: $90,000
MH used during August: 2,000 (within Baxley’s production relevant range)
August direct labor cost: $25,066.67
Production completed: 1,400 units
*Supplementary records disclosed direct material cost of $30,000 and conversion cost of $14,600.
Conversations with manufacturing personnel revealed that the ending work in process was 80% complete.
Required:
A. Determine the number of units in the August 31 work-in-process inventory.
B. Calculate the cost of goods completed during August, and prepare the appropriate journal entry to record completed production.
C. Determine the cost of the August 31 work-in-process inventory.
D. What the factors Baxley needs to consider for switching to FIFO process costing?
Year
Plant-wide MOH$
Machine Hours Used
2011
$245,800
16,380
2012
$246,250
16,250
2013
$354,820
16,320
2014
$353,800
27,200
2015
$302,700
28,200
2016
$276,400
22,400
2017
$254,200
19,600
Explanation / Answer
Part A:
Units introduced
1800
Add: opening WIP
600
2400
Less: Units completed in August
1400
Closing WIP
1000
Part B:
Cost of goods completed
Opening WIP
600
44600
Units introduced
1800
Direct materials
90000
Direct labour
25066.67
Overhead
Machine hours
2000
Machine hour rate
55.82002
111640
226706.7
Total cost
271306.7
Closing WIP
1000 units @80%
800
Units completed
1400
Equivalent production units for the above cost
2200
Units completed
1400
Cost of goods completed during August
172649.7
(271306.7 X 1400/2200)
Date
Particulars
Debit ($)
Credit ($)
Cost of goods sold
172649.7
WIP opening
44600
Cost incurred
128049.7
(Being the cost of good completed)
Part C:
Cost of goods completed
Opening WIP
600
44600
Units introduced
1800
Direct materials
90000
Direct labour
25066.67
Overhead
Machine hours
2000
Machine hour rate
55.82002
111640
226706.7
Total cost
271306.7
Closing WIP
1000 units @80%
800
Units completed
1400
Equivalent production units for the above cost
2200
Units in closing WIP
1000
Closing WIP cost
123321.2
(271306.7 X 1000/2200)
Part d:
FIFO is one of the most popular methods when it comes to valuing the inventories. The reason that most of the manufacturing and other organizations follow FIFO method is due to the scientific justification behind the method. The fact that the inventories produced at the beginning will be issued at the beginning is not only scientific but also natural. Thus, Baxley needs to consider the impact of switching to FIFO on the cost of goods sold, value of inventories and the amount of gross profit.
Part A:
Units introduced
1800
Add: opening WIP
600
2400
Less: Units completed in August
1400
Closing WIP
1000
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