Question

Journal Entries, T-Accounts, Cost of Goods Manufactured and Sold

During May, the following transactions were completed and reported by Jerico Company:

1. Materials purchased on account, $60,200.
2. Materials issued to production to fill job-order requisitions: direct materials, $50,000; indirect materials, $8,700.
3. Payroll for the month: direct labor, $75,000; indirect labor, $35,000; administrative, $28,000; sales, $19,000.
4. Depreciation on factory plant and equipment, $10,400.
5. Property taxes on the factory accrued during the month, $1,450.
6. Insurance on the factory expired with a credit to the prepaid insurance account, $6,200.
7. Factory utilities, $5,500.
8. Advertising paid with cash, $7,900.
9. Depreciation on office equipment, $800; on sales vehicles, $1,650.
10. Legal fees incurred but not yet paid for preparation of lease agreements, $750.
11. Overhead is charged to production at a rate of $18 per direct labor hour. Records show 4,000 direct labor hours were worked during the month.
12. Cost of jobs completed during the month, $160,000.

The company also reported the following beginning balances in its inventory accounts:

Materials Inventory	$7,500
Work-in-Process Inventory	37,000
Finished Goods Inventory	50,000

Required:

1. 3. Prepare a statement of cost of goods manufactured.

   Jerico Company
   Statement of Cost of Goods Manufactured
   For the Month Ended May 31, 20XX
   		$
   Overhead:
   	$
   	$
   Manufacturing costs added		$
   Cost of goods manufactured		$

   4. If the overhead variance is all allocated to cost of goods sold, by how much will cost of goods sold decrease or increase?
       by $

Answer 1

Solution 3:

Jerico Company
Statement of Cost of Goods Manufactured
For the Month Ended May 31, 20XX
Direct material used		$50,000.00
Direct labor		$75,000.00
Overhead:
Indirect materials	$8,700.00
Indirect labor	$35,000.00
Depreciation on factory, plant and equipment	$10,400.00
Property taxes on factory	$1,450.00
Factory insurance	$6,200.00
Factory utilities	$5,500.00
Total overhead incurred	$67,250.00
Overhead applied (4000 * $18)		$72,000.00
Manufacturing costs added		$197,000.00
Add: Beginning WIP		$37,000.00
Less: Ending WIP (Bal fig)		$74,000.00
Cost of goods manufactured		$160,000.00

Solution 4:

If the overhead variance is all allocated to cost of goods sold, then increase or decrease in cost of goods sold = Overhead incurred - Overhead applied = $67,250 - $72,000 = $4,750 decrease.