Question

Vernon Manufacturing started in 2018 with the following account balances: Cash Common stock Retained earnings Raw materials inventory Work in process inventory Finished goods inventory (380 units @ $5.95 each) $6,000 5,151 5,400 1,400 890 2,261 Transactions during 2018 1. Purchased $2,890 of raw materials with cash. 2. Transferred $3,770 of raw materials to the production department. 3. Incurred and paid cash for 240 hours of direct labor @ $15.30 per hour. 4. Applied overhead costs to the Work in Process Inventory account. The predetermined overhead rate is $16.00 per direct labor hour. 5. Incurred actual overhead costs of $4,000 cash. 6. Completed work on 1,250 units for $6.00 per unit. 7. Paid $1,160 in selling and administrative expenses in cash. 8. Sold 1,250 units for $10,600 cash revenue (assume FIFO cost flow). 9. Vernon charges overapplied or underapplied overhead directly to Cost of Goods Sold. Required a. Record the preceding events in a horizontal statements model. The beginning balances are shown as an example. b. Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2018.

Answer 1

Horizontal Satement Models
	Assets					Equity
Particluar	Cash	Manufacturing Overhead	Raw Materials	Work in Process	Finished	Common Stock	Retained Earnings	Revenues	Expenses	Net Income
Bal	$6,000		$1,400	$890	$2,261	$5,151	$5,400
Material Purchased	-$2,890		$2,890
Material Used			-$3,770	$3,770
Labour Used & Paid	-$3,672			$3,672
Applied Overhead ( 240*16)		-$3,840		$3,840
Actual Overhead Paid	-$4,000	$4,000
Trff Finished from WIP (1250*6)				-$7,500	$7,500
Sold	$10,600				-$7,481			$10,600	$7,481
Selling & Admin	-$1,160								$1,160
Underapplied Overhead		-$160							$160
	$4,878	$0	$520	$4,672	$2,280	$5,151	$5,400	$10,600	$8,801	$1,799

* Cost of Goods Sold= 380*5.95+ (1250-380)*6

Cost of Goods Manufactured and Sold
Beginning Work in Process Inventory		$890.00
Raw Materials issued to production
Beginning balance	$1,400.00
Add: Purchases	$2,890.00
Less Ending balance	-$520.00	$3,770.00
Direct Labor		$3,672.00
Manufacturing Overhead		$3,840.00
Total Manufacturing Costs		$12,172.00
Total Work in Process Inventory		$12,172.00
Less: Ending Work in Process Inventory		-$4,672.00
Cost of Goods Manufactured		$7,500.00
Add: Beginning Finished Goods Inventory		$2,261.00
Cost of Goods Available for Sale		$9,761.00
Less: Ending Finished Goods Inventory		-$2,280.00
Cost of Goods Sold		$7,481.00
Benson Manufacturing Company
Income Statement
Sales Revenue	$10,600.00
Less Cot of Goods Sold ( Adjusted) (7481+160)	$7,641.00
Gross Profit	$2,959.00
Less: Selling and Administrative Expenses	-$1,160.00
Net Operating Income	$1,799.00
Benson Manufacturing Company
Balance Sheet
Assets
Cash	$4,878.00
Finished Goods Inventory	$2,280.00
Work in Process Inventory	$4,672.00
Raw Materials Inventory	$520.00
Total Assets	$12,350.00
Equity
Common Stock	$5,151.00
Retained Earnings	$7,199.00
Total Equity	$12,350.00