Question

44. Completing missing data (Appendix 2.2). After a dispute concerning wages, John Lyon destroyed all information systems files and tossed an incendiary device into the Smiley Company's record vault. Within moments, only a few readable, charred fragments remained from the company's hard-copy backup of the computer files, as follows: Direct Materials Inventory Bal. 4/1 12,000 Manufacturing Overhead Actual Costs for April 14,800 Accounts Payable Work-in-Process Inventory Bal. 4/1 4,500 Bal. 4/30 8,000 Finished Goods Inventory Cost of Goods Sold Bal. 4/30 16,000 Sifting through the ashes and interviewing selected employees generated the following additional information: 1. The controller remembers clearly that the firm based the predetermined overhead rate on an estimated 30,000 direct labor hours to be worked over the year and an estimated $180,000 in manufacturing overhead costs. 2. The production superintendent's cost sheets showed only one job in process on April 30. The firm had added materials of $2,600 to the job and expended 150 direct labor hours at $12 per hour. 1100 3. The Accounts Payable are for direct materials purchases only, according to the ac- counts payable clerk. He clearly remembers that the balance in the account was $6,000 on April 1. An analysis of canceled checks (kept in the treasurer's office) shows that Smiley made payments of $40,000 to suppliers during the month. 4. A charred piece of the payroll ledger shows that the firm recorded 2,600 direct la- bor hours for the month. The employment department has verified that pay rates were the same for all employees (this infuriated Lyon, who thought that Smiley underpaid him). 5. Records maintained in the finished goods warehouse indicate that the finished goods inventory totaled $11,000 on April 1. 6. From another charred paper in the vault, you discern that the cost of goods manufactured that is, finished) for April was $89,000. Compute the following amounts: a. Work-in-Process Inventory, April 30 b. Direct materials purchased during April c. Overhead applied to Work-in-Process d. Cost of Goods Sold for April e. Over- or underapplied overhead for April f. Direct materials usage during April g. Direct materials inventory, April 30

Answer 1

Predetermined overhead rate = $180,000 / 30,000 = $6 per direct labor hour

a. Work in process inventory, April 30 :

Direct material	$2,600
Direct labor (150*$12)	1,800
Overhead applied (150*$6)	900
Work in process inventory, April 30	$5,300

b. Direct material purchased during April = Accounts payable, April 30 + Cash payments - Accounts payable, April 1

Direct material purchased during April = $8,000+40,000-6,000 = $42,000

c. Overhead applied to work in process = 2,600*$6 = $15,600

d. Cost of goods sold = Finished goods inventory, April 1 + Cost of goods manufactured - Finished goods inventory, April 30

Cost of goods sold = $11,000+89,000-16,000 = $84,000

e. Over or underapplied overhead for April = Actual overhead - Overhead applied

Overapplied overhead = $14,800 - 15,600 = $800

f. Direct material usage during april :

Total manufacturing cost = Work in process, April 30 + Cost of goods manufactured - Work in process, April 1

Total manufacturing cost = $5,300+89,000-4,500 = $89,800

Direct material usage = Total manufacturing cost - Direct labor cost - Overhead applied

Direct material usage = $89,800 - 31,200 (2,600*$12) - 15,600 = $43,000

g. Direct material inventory, April 30 = Direct material inventory, April 1 + Direct material purchases - Direct material usage

Direct material inventory, April 30 = $12,000+42,000-43,000 = $11,000