Question

Major League Bat Company manufactures baseball bats. In addition to its work in process inventories, the...

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:

  1. Total costs transferred to finished goods for July.
  2. 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.)

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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

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