Question

Question 2 The following cost data for the year ending 30 June 2020 relate to Excite Technologies Ltd. Medical Aero Equipment Engines Division Division S Sales $480,000 ? Inventories at 1 July 2019 Raw materials 15,000 ? Work in process " 140.000 Finished goods ? 200.000 Inventories at 30 June 2020 Raw materials Work in process Finished goods 20.000 5,000 25.000 320,000 ? ? ? 7 125,000 189,500 Direct material used Purchases of raw materials Direct labour Actual manufacturing overhead Selling and administrative expenses Total manufacturing costs Cost of goods manufactured Cost of goods available for sale Cost of goods sold Gross profit Net profit 367,500 377,500 397,500 ? 380,000 460,000 ? 1,341,000 ? 2.630,000 2.650,000 ? 2,721,000 579,000 159,000 60,500 The company uses normal casting and manufacturing overhead is applied at the rate of 15% of direct labour cost. Over or under-applied manufacturing overhead is closed on an annual basis to the cost of goods sold and this has been included in the above data. Required: (a) Interpret the relationship between the cost figures above to determine the missing amounts in each of the divisions shown above (24 marks) (b) Calculate the amounts to be charged to work in process, finished goods inventory and cost of goods sold for the Aero Engines Division at the end of 30 June 2020 If the proration method is used. Provide your final answer to the nearest dollar. (4 marks) (c) Prepare the necessary joumal entries for (b) to describe the flow of costs. (2 marks) Present all workings in a clear and succinct manner.

Answer 1

a) Medical Equipment Division $480,000 Aero Engines Division $3,300,000 Sales Inventories 1st July, 2019 Raw materials Work in process Finished goods $15,000 $15,000 $20,000 $240,000 $140,000 $200,000 Inventories, 30th June 2020 Raw materials Work in process Finished goods $30,000 $5,000 $25,000 $320,000 $120,000 $120,000 Direct material used Purchases of Direct material Direct labor Actual manufacturing overhead Selling and administration expenses Total manufacturing costs Cost of goods manufactured Cost of goods available for sale Cost of goods sold Gross profit Net profit $55,000 $70,000 $125,000 $189,500 $45,100 $367,500 $377,500 $397,500 $374,400 $105,600 $60,500 $380,000 $460,000 $900,000 $1,341,000 $420,000 $2,630,000 $2,650,000 $2,850,000 $2,721,000 $579,000 $159,000 Working notes: Medical Equipment Division Aero Engines Division Total manufacturing cost Less: Direct labor cost Manufacturing overhead applied Direct material used $367,500 $125,000 $187,500 150% of $125,000 $55,000 Total manufacturing cost $2,630,000 Less: Direct material used $380,000 Direct labor and manufacturing overhead $2,250,000 Direct labor Manufacturing overhead applied $900,000 $2,250,000/250% $1,350,000 $2,250,000/250%*150% Materials inventory, Closing Direct material used Cost of materials available for use Less materials inventory, Opening Material purchase $30,000 $55,000 $85,000 $15,000 $70,000 Materials inventory, Closing Direct material used Cost of materials available for use Less: Material purchase Materials inventory, Opening $320,000 $380,000 $700,000 $460,000 $240,000 Cost of goods manufactured Closing WIP $377,500 $5,000 $382,500 $367,500 $15,000 Total manufacturing cost Opening WIP Less: Total manufacturing cost Opening WIP $2,630,000 $140,000 $2,770,000 $2,650,000 $120,000 Cost of goods manufactured Closing WIP Cost of goods available for sale Cost of goods manufactured Opening Finished goods inventory $397,500 $377,500 $20,000 Cost of goods manufactured Opening Finished goods inventory Cost of goods available for sae Less: Cost of goods sold Closing Finished goods inventory $2,650,000 $200,000 $2,850,000 $2,730,000 $120,000 Cost of goods available for sale Closing Finished goods inventory Cost of goods sold $397,500 $25,000 $372,500 Actual manufacturing overhead Manufacturing overhead applied Under-applied manufacturing overhead $189,400 $187,500 $1,900 Cost of goods sold Over-applied manufacturing overhead Unadjusted cost of goods sold $2,721,000 $9,000 $2,730,000 Cost of goods sold Under-applied manufacturing overhead Adjusted Cost of goods sold $372,500 $1,900 $374,400 Actual manufacturing overhead Manufacturing overhead applied Over-applied manufacturing overhead $1,341,000 $1,350,000 -$9,000 Cost of goods sold Gross profit $480,000 Sales Cost of goods sold Gross profit $2,721,000 $579,000 $3,300,000 $374,400 Sales $105,600 Gross profit Net profit Selling and administrative expenses $105,600 $60,500 $45,100 Gross profit Net profit Selling and administrative expenses $579,000 $159,000 $420,000 b) Raw materials Work in process Finished goods Total Medical Equipment Division $30,000 $5,000 $25,000 $60,000 Overheads Pro-rata allocation $950 $158 $792 $1,900 Raw materials Work in process Finished goods Total Aero Engines Division $320,000 $120,000 $120,000 $560,000 Overheads Pro-rata allocation $5,1431 $1,929 $1,929 $9,000 Credit Debit $9501 Medical Equipment Division Account title and explanation Raw materials Inventory Work in process inventory Finished goods Inventory Manufacturing overhead (To record under-applied overhead) $158 $792 $1,900 Credit Debit $9,000 Aero Engines Division Account title and explanation Manufacturing overhead Raw materials Inventory Work in process inventory Finished goods Inventory (To record over-applied overhead) $5,143 $1,9291 $1,9291