Question

Major League Bat Company manufactures baseball bats. In addition to its work in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials. Its factory payroll costs include direct labor for production and indirect labor. All materials are added at the beginning of the process, and conversion costs are applied uniformly throughout the production process.

Required:
You are to maintain records and produce measures of inventories to reflect the July events of this company. The June 30 balances: Raw Materials Inventory, $24,000; Work in Process Inventory, $8,660 ($2,910 of direct materials and $5,750 of conversion); Finished Goods Inventory, $160,000; Sales, $0; Cost of Goods Sold, $0; Factory Wages Payable, $0; and Factory Overhead, $0.

1. Prepare journal entries to record the following July transactions and events.

1. Purchased raw materials for $140,000 cash (the company uses a perpetual inventory system).
2. Used raw materials as follows: direct materials, $65,240; and indirect materials, $12,500.
3. Recorded factory wages payable costs as follows: direct labor, $208,500; and indirect labor, $27,500.
4. Paid factory payroll cost of $236,000 with cash (ignore taxes).
5. Incurred additional factory overhead costs of $85,000 paid in cash.
6. Applied factory overhead to production at 50% of direct labor costs.

2. Information about the July inventories follows. Use this information with that from part 1 to prepare a process cost summary, assuming the weighted-average method is used. (Round "Cost per EUP" to 2 decimal places.)

Units
Beginning inventory	7,500	units
Started	16,000	units
Ending inventory	10,000	units
Beginning inventory
Materials—Percent complete	100	%
Conversion—Percent complete	75	%
Ending inventory
Materials—Percent complete	100	%
Conversion—Percent complete	40	%

3. Using the results from part 2 and the available information, make computations and prepare journal entries to record the following:

7. Total costs transferred to finished goods for July.
8. Sale of finished goods costing $278,200 for $650,000 in cash.

4. Post entries from parts 1 and 3 to the following general ledger accounts.
5. Compute the amount of gross profit from the sales in July. (Hint: Add any underapplied overhead to, or deduct any overapplied overhead from, the cost of goods sold.)

Answer 1

1	Ref.	Account titles and explanation					Debit	Credit
	a.	Raw materials inventory					140000
		Cash						140000
		(Purchased raw materials for cash)
	b.	Work in process inventory					65240
		Factory overhead					12500
		Raw materials inventory						77740
		(Materials used)
	c.	Work in process inventory					208500
		Factory overhead					27500
		Factory wages payable						236000
		(Factory wages recorded)
	d.	Factory wages payable					236000
		Cash						236000
		(Factory wages paid)
	e.	Factory overhead					85000
		Cash						85000
		(Factory overhead cost incurred)
	f.	Work in process inventory			(208500*50%)		104250
		Factory overhead						104250
		(Factory overhead applied)
2	Unit reconcilation:
	Units to account for:
	Beginning work in process inventory						7500
	Started						16000
	Total units to account for						23500
	Total units accounted for:
	Units started and completed during July				(23500-10000)		13500
	Ending work in process inventory						10000
	Total units accounted for						23500
	Equivalent units of production (EUP)-Weighted average method
							Units	% materials	EUP-Materials	% conversion	EUP-Conversion
	Units started and completed during the year						13500	100%	13500	100%	13500
	Ending work in process inventory						10000	100%	10000	40%	4000
	Total units								23500		17500
	Cost per equivalent unit of production								Materials		Conversion
	Beginning work in process inventory								2910		5750
	Cost added during the year								65240		312750
											(208500+104250)
	Total cost								68150		318500
	/ Equivalent units of production								23500		17500
	Cost per equivalent unit of production								2.90		18.20
	Total costs accounted for:
	Cost of units transferred out						EUP	Cost per EUP	Total cost
	Direct materials						13500	2.9	39150
	Conversion						13500	18.2	245700
	Total costs transferred out					A			284850
	Costs of ending work in process
	Direct materials						10000	2.9	29000
	Conversion						4000	18.2	72800
	Total cost of ending work in process					B			101800
	Total costs accounted for					A+B			386650