Question

Exercise 7-24 (Static) Assigning Costs to Jobs (LO 7-1, 2)

Forest Components makes aircraft parts. The following transactions occurred in July.

1. Purchased $119,000 of materials on account.

2. Issued $117,600 in direct materials to the production department.

3. Issued $8,400 of supplies from the materials inventory.

4. Paid for the materials purchased in transaction (1) using cash.

5. Returned $15,400 of the materials issued to production in (2) to the materials inventory.

6. Direct labor employees earned $217,000, which was paid in cash.

7. Purchased miscellaneous items for the manufacturing plant for $120,400 on account.

8. Recognized depreciation on manufacturing plant of $245,000.

9. Applied manufacturing overhead for the month.

  

Forest uses normal costing. It applies overhead on the basis of direct labor costs using an annual, predetermined rate. At the beginning of the year, management estimated that direct labor costs for the year would be $3,000,000. Estimated overhead for the year was $2,790,000.

The following balances appeared in the inventory accounts of Forest Components for July.

	Beginning			Ending
Materials Inventory		?			$88,200
Work-in-Process Inventory		?			73,500
Finished Goods Inventory		$18,200			49,700
Cost of Goods Sold		?			521,500

Required:

a. Prepare journal entries to record these transactions.
b. Prepare T-accounts to show the flow of costs during the period from Materials Inventory through Cost of Goods Sold.

Answer 1

a) Journal Entries :-

S No.	Particulars	Debit($)	Credit($)
1	Raw Materials Inventory A/c	119000
	Accounts Payable A/c		119000
	(Being Record Purchase on Account)
2	Work in Process Inventory A/c	117600
	Raw Materials inventory A/c		117600
	(Being Record Raw Material issue for production)
3	Manufacturing Overhead A/c	8400
	Raw Materials Inventory A/c		8400
	(Being Record Issue of Supplies)
4	Accounts Payable A/c	119000
	Cash A/c		119000
	(being Record payment of Account Payable)
5	Raw Materials Inventory A/c	15400
	Work in Process Inventory A/c		15400
	(Being Record Return of Inventory)
6	Wages Expenses A/c	217000
	Cash A/c		217000
	(Being Record Wages Payment)
7	Work in Process A/c	217000
	Wages Expense A/c		217000
	(being Record Direct Labor apply to production)
8	Manufacturing Overhead A/c	120400
	Account Payable A/c		120400
	(Being Record Payment for misc. items on Account)
9	Manufacturing Overhead A/c	245000
	Accumulated Depreciation - Plant A/c		245000
	(Being Record Depreciation on Plant)
10	Work in Process inventory A/c ($217000*$2790000/$3000000)	201810
	Manufacturing Overhead A/c		201810
	(Being record Apply manufacturing overhead to Production)
11	Finished Goods Inventory A/c(Working Note)	553000
	Work in process Inventory A/c		553000
	(Being Work in Process inventory transfer to Finished Goods Inventory)

Working Note :-

Finished Goods Inventory = Cost of Goods Sold + Ending Balance of Finished Goods - Beginning Balance of Finished Goods

= $521500 + $49700 - $18200

= $553000

b) T-Account :-

Raw Material Inventory :-

Particulars	Amount($)	Particulars	Amount($)
Beginning Balance*	79800	Work in Process Inventory	117600
Accounts Payable	119000	Manufacturing Overhead	8400
Work in Process Inventory	15400	Ending Balance	88200
	214200		214200

*Beginning Balance = $214200 - $119000 - $15400 = 79800

Wages Expenses :-

Particulars	Amount($)	Particulars	Amount($)
Cash	217000	Work in Process Inventory	217000
	217000		217000

Manufacturing Overhead :-

Particulars	Amount($)	Particulars	Amount($)
Raw Material Inventory	8400	Work in Process Inventory	201810
Accounts Payable	120400
Accumulated depreciation	245000	Ending Balance	171990
	373800		373800

Work in Process Inventory :-

Particulars	Amount($)	Particulars	Amount($)
Beginning Balance**	105490	Raw Material Inventory	15400
Raw Material Inventory	117600	Finished Goods Inventory	553000
Wages Expense	217000
Manufacturing Overhead	201810	Ending Balance	73500
	641900		641900

**Beginning Balance = $641900 - $117600 - $217000 - $201810 = $105490

Finished Goods Inventory:-

Particulars	Amount($)	Particulars	Amount($)
Beginning Balance	18200	Cost of Goods Sold	521500
Work in Process Inventory	553000	Ending Balance	49700
	571200		521500

Cost of Goods Sold :-

Particulars	Amount($)	Particulars	Amount($)
Beginning Balance (Bal. Fig.)	521500	Ending Balance	521500
	521500		521500