Question

On January 1, 2020, John Smith launched a computer services company, Technology Business Solutions that is organized as a corporation and provides computer consulting services and computer system installations. Smith adopts the calendar year for reporting purposes. After the initial success of the company, John Smith continues to operate Technology Business Solutions and has expanded into computer systems manufacturing and sales. They are currently contracting with several large businesses to develop and construct their IT systems. They are several months into the planning and production of these systems and the information for the current month is as follows: Beginning balance Ending balance Raw materials Work in process Finished goods $19,000 $32,000 $46,500 $8,000 $30,351 $54,275 The company applies overhead to jobs using a predetermined overhead rate based on direct labor hours. At the beginning of the year, the company estimated that it would work 51,000 direct labor hours and incur $351,000 in manufacturing overhead cost. The following transactions were recorded for the current month: 1. Raw materials were purchased on account in the amount of $87,000. 2. Raw materials requisitioned for use in production totaled $98,000 ($86,000 direct and $12,000 indirect) 3. The following employee costs were incurred: direct labor was $77,000; indirect labor was $21,000; and executive salaries were $42,000. 4. Selling costs, consisting of commissions for a contracted sales staff and advertising, were incurred in the amount of $44,000. 5. Utility costs were incurred in the amount of $11,400, $5,900 of which was for the factory and the rest for the administrative offices. 6. Depreciation for the month was $28,000 of which $22,000 is related to factory operations and the rest is related to selling and administrative activities. 7. Manufacturing overhead was applied to jobs. The actual level of activity for this month was 2,285 direct labor hours. 8. Sales for the month on account totaled $334,000. Required: a. Identify one example of the following cost classifications for this company: 1. Direct Material 2. Direct Labor 3. Indirect Material

part a-g

do you have any more questions, or are you able to solve it now?

are you confused about anything or are you solving it?

Answer 1

Answer-a:

1. Direct material- Motherboard, keyboard purchase etc

2. Indirect material- material used in maintenance of plant and machinery

3. Direct labor- wages paid to worker engaged in assembling parts

4. Indirect labor- wages paid to inspector, store keeper.

5. Manufacturing overhead- all factory expense like rent, repair, insurance, rates, taxes etc.

Answer-b:

No.	Account Title	Debit	Credit
1	Raw material inventory	$    87,000
	Account payable		$    87,000
2	Work in process inventory	86,000
	Manufacturing overhead	12,000
	Raw material inventory		98,000
3	Work in process inventory	77,000
	Manufacturing overhead	21,000
	Salaries expense	42,000
	Salaries and wages payable		140,000
4	Sales commission	44,000
	Salaries and wages payable		44,000
5	Manufacturing overhead	5,900
	Administratice and office expense	5,500
	Account payable		11,400
6	Manufacturing overhead	22,000
	Depreciation expense	6,000
	Accumulated depreciation		28,000
7	Work in process inventory	15,726
	Manufacturing overhead (351,000/51,000*2285)		15,726
8	Account receivable	334,000
	Sales		334,000
9	Finished goods inventory	180,375
	Work in process inventory		180,375
10	Cost of goods sold	172,600
	Finished goods inventory		172,600

Answer-d:

Schedule of Cost of Goods Manufactured Direct Materials: Beginning raw materials inventory 19,000 Add: Purchase of raw materials 87,000 Total raw materials available 106,000 Less: Ending raw materials inventory 8,000 Raw materials used in production 98,000 Less: Indirect materials used 12,000 Direct labour Manufacturing overhead applied to work in process Total manufacturing costs Add: Beginning work in process inventory 86,000 77,000 15,726 178,726 32,000 210,726 30,351 180,375 Less: Ending work in process inventory Cost of goods manufactured

Answer-e:

MOH
12,000	15,726
21,000
5,900
22,000
45,174

Since there is debit balance in Manufacturing overhead account, it is under-applied overhead of $45,174

Journal entry to close it is:

Cost of goods sold	45,174
Manufacturing overhead		45,174

sgsh