The following events apply to Milligan Manufacturing Company. Assume that all tr
ID: 2568872 • Letter: T
Question
The following events apply to Milligan Manufacturing Company. Assume that all transactions are cash transactions unless otherwise indicated.
Transactions for the 2017 Accounting Period
The company was started on January 1, 2017, when it acquired $140,000 cash by issuing common stock.
The company purchased $40,000 of direct raw materials with cash and used $2,430 of these materials to make its products in January.
Employees provided 900 hours of labor at $5.70 per hour during January. Wages are paid in cash.
The estimated manufacturing overhead costs for 2017 were $64,800. Overhead is applied on the basis of direct labor hours. The company expected to use 12,000 direct labor hours during 2017. Calculate an overhead rate and apply the overhead for January to work in process inventory.
The employees completed work on all inventory items started in January. The cost of this production was transferred to the Finished Goods Inventory account. Determine the cost per unit of product produced in January, assuming that a total of 1,800 units of product were started and completed during the month.
The company used an additional $31,050 of direct raw materials and 11,500 hours of direct labor at $5.70 per hour during the remainder of 2017. Overhead was allocated on the basis of direct labor hours.
The company completed work on inventory items started between February 1 and December 31, and the cost of the completed inventory was transferred to the Finished Goods Inventory account. Determine the cost per unit for goods produced between February 1 and December 31, assuming that 23,000 units of inventory were produced. If the company desires to earn a gross profit of $2.70 per unit, what price per unit must it charge for the merchandise sold?
The company sold 22,000 units of inventory for cash at $9.60 per unit. Determine the number of units in ending inventory and the cost per unit incurred for this inventory.
Actual manufacturing overhead costs paid in cash were $65,700.
The company paid $37,800 cash for selling and administrative expenses.
Close the Manufacturing Overhead account.
Close the revenue and expense accounts.
Transactions for the 2018 Accounting Period
The company purchased $40,500 of direct raw materials with cash and used $2,280 of these materials to make products in January.
Employees provided 800 hours of labor at $5.70 per hour during January.
On January 1, 2018, Milligan hired a production supervisor at an expected cost of $1,080 cash per month. The company paid cash to purchase $4,500 of manufacturing supplies; it anticipated that $4,140 of these supplies would be used by year-end. Other manufacturing overhead costs (production supplies) were expected to total $64,800. Overhead is applied on the basis of direct labor hours. Milligan expected to use 14,000 hours of direct labor during 2018. Based on this information, determine the total expected overhead cost for 2018. Calculate the predetermined overhead rate and apply the overhead cost for the January production.
The company recorded a $1,080 cash payment to the production supervisor.
The employees completed work on all inventory items started in January. The cost of this production was transferred to the Finished Goods Inventory account. Determine the cost per unit of product produced in January, assuming that 1,600 units of product were started and completed during the month.
During February 2018, the company used $2,850 of raw materials and 1,000 hours of labor at $5.70 per hour. Overhead was allocated on the basis of direct labor hours.
The company recorded a $1,080 cash payment to the production supervisor for February.
The employees completed work on all inventory items started in February; the cost of this production was transferred to the Finished Goods Inventory account. Determine the cost per unit of product produced in February, assuming that 2,000 units of product were started and completed during the month.
The company used an additional $34,200 of direct raw materials and 12,000 hours of direct labor at $5.70 per hour during the remainder of 2018. Overhead was allocated on the basis of direct labor hours.
The company recorded $10,800 of cash payments to the production supervisor for work performed between March 1 and December 31.
The company completed work on inventory items started between March 1 and December 31. The cost of the completed goods was transferred to the Finished Goods Inventory account. Compute the cost per unit of this inventory, assuming that there were 24,000 units of inventory produced.
The company sold 26,000 units of product for $9.90 cash per unit. Assume that the company uses the FIFO inventory cost flow method to determine the cost of goods sold.
The company paid $38,700 cash for selling and administrative expenses.
As of December 31, 2018, $450 of production supplies was on hand.
Actual cost of other manufacturing overhead was $63,020 cash.
Close the Manufacturing Overhead account.
Close the revenue and expense accounts.
Required
Post the above transactions for both years to the appropriate T-accounts.
Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for each year.
Explanation / Answer
Cost per Unit of product produced in January 2017: Raw Material used 2,430 Wages 5,130 Overheads 4,860 12,420 No. of Units produced 1,800 Per unit cost 6.9 Cost per Unit of product produced in January to December 2017: Raw Material used 31,050 Wages 65,550 Overheads 62,100 158,700 No. of Units produced 23,000 Per unit cost 6.9 Add: Gross Profit p.u. 2.7 Sale Price 9.60 No. of Units in Inventory: Cost Opening Balance-2017 - - Units produced during the year 24,800 171,120 Units sold 22,000 151,800 Balance in Inventory at 2017 end 2,800 19,320 Cost of Inventory 19,320 Cost per Unit of product produced in January 2018: Raw Material used 2,280 Wages 4,560 Overheads 3,703 Manufacturing supplies 345 Supervisor salary 1,080 11,968 No. of Units produced 1,600 Per unit cost 7.5 Cost per Unit of product produced in February 2018: Raw Material used 2,850 Wages 5,700 Overheads 4,629 Manufacturing supplies 345 Supervisor salary 1,080 14,604 No. of Units produced 2,000 Per unit cost 7.3 Cost per Unit of product produced in March to December 2018: Raw Material used 34,200 Wages 68,400 Manufacturing Supplies 3,450 Supervisor Salary 10,800 Overheads 55,543 172,393 No. of Units produced 24,000 Per unit cost 7.2 No. of Units in Inventory: Units Cost Opening Stock 2,800 19,320 Units produced during the year 27,600 198,964 Units sold 26,000 186,679 Balance in Inventory at 2018 end 4,400 31,605 Cost of Inventory 31,605 Cost of Units sold during the year: 186,679 Miligan Manufacturing Company T-Accounts: Share Capital A/c - 2017 By Cash A/c 140,000 To balance c/d 140,000 140,000 140,000 Share Capital A/c - 2018 By balance b/d 140,000 To balance c/d 140,000 140,000 140,000 Revenue & Expense A/c - 2017 To Raw Material A/c 2,430 By Sales 211,200 To Wages A/c 5,130 To Overhead A/c 4,860 By Under-absorption of Overheads 1,260 To Raw Material A/c 31,050 To Wages A/c 65,550 To Overhead A/c 62,100 To Selling & OH 37,800 To Net Profit T/F to P/L Account 3,540 212,460 212,460 Revenue & Expense A/c - 2018 To Raw Material A/c 2,280 By Sales 257,400 To Wages A/c 4,560 To Supervisor Salary 1,080 By Under-absorption of Overheads 854 To Overhead A/c 3,703 To Manufacturing Supplies 345 By Under-absorption of Manufactuting supplies 90 To Raw Material A/c 2,850 To Wages A/c 5,700 To Supervisor Salary 1,080 To Overhead A/c 4,629 To Manufacturing Supplies 345 To Raw Material A/c 34,200 To Wages A/c 68,400 To Supervisor Salary 10,800 To Overhead A/c 55,543 To Manufacturing Supplies 3,450 To Selling & OH 38,700 To Net Profit T/F to P/L Account 20,680 258,344 258,344 Cash A/c - 2017 To Share Capital A/c 140,000 By Raw Material A/c 40,000 To Sales A/c 211,200 By Wages for January 5,130 By Wages for rest of the year 65,550 By Overhead Expense 65,700 By Selling & OH exp. 37,800 By Balance c/d 137,020 351,200 351,200 Cash A/c - 2018 To balance b/d 137,020 By Raw Material A/c 40,500 To Sales 257,400 By Wages for January 4,560 By Purchase of Manufacturing supplies 4,500 By Supervisor salary 1,080 By Wages for February 5,700 By Supervisor salary-February 1,080 By Wages for rest of the year 68,400 By Supervisor salary-rest of the year 10,800 By Overhead Expense 63,020 By Selling & OH exp. 38,700 By Balance c/d 156,080 394,420 394,420 Manufacturing Overhead A/c - 2017 To Profit & Loss A/c (for January) 4,860 By Cash 65,700 To Profit & Loss A/c (for feb to dec) 62,100 By Profit & Loss A/c (Under absorption of OH) 1,260 66,960 66,960 Manufacturing Overhead A/c - 2018 To Profit & Loss Account 3,703 By Cash 63,020 To Profit & Loss Account 4,629 To Profit & Loss Account 55,543 By Profit & Loss A/c (Under absorption of OH) 854 63,874 63,874 Income Statement - 2017 To Raw Material 33,480 By sales 211,200 To wages 70,680 By Closing Stock 19,320 To Overheads 65,700 To Selling OH 37,800 To Net Profit T/F to B/S 22,860 230,520 230,520 Balance Sheet - 2017 To Share Capital 140,000 Cash 137,020 Reserves & Surplus 22,860 Inventory - Finished Goods 19,320 Inventory - Raw Material 6,520 162,860 162,860 Income Statement - 2018 To Raw Material 39,330 By sales 257,400 To Wages 78,660 By Closing Stock 31,605 To Supervisor salary 12,960 To Manufacturing supplies 4,050 To Overheads 63,020 To Selling OH 38,700 To Net Profit T/F to B/S 52,285 289,005 289,005 Balance Sheet - 2018 To Share Capital 140,000 Cash 156,080 Reserves & Surplus 75,145 Inventory - Finished Goods 50,925 Inventory - Raw Material 7,690 Prepaid Manufacturing supplies 450 215,145 215,145
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