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In: Accounting

Rooney Corporation builds sailboats. On January 1, 2019, the company had the following account balances: $75,000...

Rooney Corporation builds sailboats. On January 1, 2019, the company had the following account balances: $75,000 for both cash and common stock. Boat 25 was started on February 10 and finished on May 31. To build the boat, Rooney had incurred cash costs of $5,800 for labor and $5,650 for materials. During the same period, Rooney paid $7,500 cash for actual manufacturing overhead costs. The company expects to incur $156,000 of indirect overhead cost during 2019. The overhead is allocated to jobs based on direct labor cost. The expected total labor cost for the year is $120,000.

Rooney uses a just-in-time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.

Required

  1. Use the horizontal financial statements model, to record Rooney’s business events. The first row shows beginning balances.

  2. If Rooney desires to earn a profit equal to 10 percent of cost, for what price should it sell the boat?

  3. If the boat is not sold by year-end, what amount would appear in the Work in Process Inventory and Finished Goods Inventory on the balance sheet for Boat 25?

  4. Is the amount of inventory you calculated in Requirement c the actual or the estimated cost of the boat?

Cash + Work in Process + Finished Goods + Manufacturing Overhead = Common Stock + Retained earnings Revenue - Expense = Net Income
75,000 + + + = 75,000 + - =
+ + + = + - =
+ + + = + - =
+ + + = + - =
+ + + = + - =
+ + + = + - =
+ + + = + - =
  • If Rooney desires to earn a profit equal to 10 percent of cost, for what price should it sell the boat? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) _____
  • Required C:
  • If the boat is not sold by year-end, what amount would appear in the Work in Process Inventory and Finished Goods Inventory on the balance sheet for Boat 25? (Do not round intermediate calculations.)
  • Required D:
  • Is the amount of inventory you calculated in Requirement c the actual or the estimated cost of the boat?

Solutions

Expert Solution

a.
Assets = Equity
Cash + Work in Process + Finished Goods + Manufacturing Overhead Common Stock + Retained Earnings Revenues - Expenses = Net Income
75,000 75,000
-5,800 5,800 NA NA NA
-5,650 5,650 NA NA NA
-7,500 7,500 NA NA NA
7,540 -7,540 NA NA NA
-18,990 18,990 NA NA NA
56,050 0 18,990 -40 75,000 NA NA NA NA
b. Desired Price : $ 20889
c.
Work in Process Inventory $0
Finished Goods Inventory $18,990
d. Estimated Cost.
Since manufacturing overhead is applied on estimated basis.
Predetermined OH Rate
156000/120000
1.3
Applied MOH 1.3*5800
7540

ekkarill92 answered 6 months ago
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