Question

7.

Forest Components makes aircraft parts. The following transactions occurred in July.

1. Purchased $16,910 of materials on account.

2. Issued $16,720 in direct materials to the production department.

3. Issued $1,350 of supplies from the materials inventory.

4. Paid for the materials purchased in transaction (1) using cash.

5. Returned $2,080 of the materials issued to production in (2) to the materials inventory.

6. Direct labor employees earned $32,400, which was paid in cash.

7. Purchased miscellaneous items for the manufacturing plant for $17,250 on account.

8. Recognized depreciation on manufacturing plant of $35,200.

9. Applied manufacturing overhead for the month.

Forest uses normal costing. It applies overhead on the basis of direct labor costs using an annual, predetermined rate. At the beginning of the year, management estimated that direct labor costs for the year would be $435,600. Estimated overhead for the year was $387,684.

The following balances appeared in the inventory accounts of Forest Components for July.

	Beginning			Ending
Materials Inventory		?		$	12,410
Work-in-Process Inventory		?			10,550
Finished Goods Inventory	$	2,770			6,980
Cost of Goods Sold		?			74,300

Required:

a. Prepare journal entries to record these transactions.

b. Prepare T-accounts to show the flow of costs during the period from Materials Inventory through Cost of Goods Sold.

Answer 1

predeternined overhead rate
estimated overhead/estimated direct labor costs
387684/435600
89%
TR	General journal				Debit	Credit
1)	Raw materials inventory				16,910
	Accounts payable					16,910
2)	Work in process inventory				16,720
	Raw materials inventory					16,720
3)	manufacturing overhead				1,350
	Raw materials inventory					1,350
4)	Accounts payable				16,910
	cash					16,910
5)	Raw materials inventory				2,080
	work in process inventory					2,080
6)	work in process inventory				32,400
	cash					32,400
7)	manufacturing overhead				17,250
	Accounts payable					17,250
8)	Manufacturing overhead				35,200
	Accumulated depreciation					35,200
9)	work in process inventory				31104
	applied Manufacturing overhead					31,104
	(32400*89%)
Materials inventory
Beg.Bal	11,490				Work in process inventory
1)	16,910	16,720	2)		beg .bal	10,916
5)	2,080	1,350	3)		2)	16,720	2,080	5)
					6)	32,400	78,510	Trfd to finished
					9)	31104		goods
end bal	12,410
					End bal	10,550
Manufacturing overhead control					Applied manufacturing overhead
Beg.bal	0				Beg.Bal		0
3)	1,350						31104	9)
7)	17,250
8)	35,200
End bal	53800				end bal		31104
Accounts payable					Cash
Beg.Bal		0			Beg.Bal	0
4)	16,910	16,910	1)				16,910	4)
		17,250	7)				32,400	6)
End bal		17,250			End bal		49,310
Accumulated Depreciation -PP&E					finished goods inventory
Beg.bal		0			Beg bal	2,770
		35,200	8)		goods com	78,510	74,300	Trfd to COGS
End bal		35200			end bal	6,980
cost of goods sold
Beg.Bal	0
Goods comp	74,300
End bal	74300

Answer 2

material inventory: (16,910+2080)- (16,720+1,350) = 920

12,410-920= 11,490

Work In Process: (16,720+32,400+31,104)-(2,080+78,510)=-366

366+10,550= 10,916

finished goods inventory

74,300-2,770= 71,530  +6,980=78,510