Question

Baba Company is a manufacturing firm that uses process costing. The company's inventory balances were as follows at the beginning and end of the year:

     

	Beginning	Ending
Raw Materials	$22,000	40,000
Work in Process	$57,000	?
Finished Goods	$30,000	$76,000

     

The company applies overhead to jobs using a predetermined overhead rate based on direct labor costs. At the beginning of the year, the company estimated that it would work 25,000 DLHs at a rate of $10.00 per hour, and incur $175,000 in manufacturing overhead cost.

The following transactions were recorded for the year:

•  Raw materials were requisitioned for use in production: $85,000 direct and $12,000 indirect.

•  The following employee costs were incurred: $240,000 direct labor, $50,000 indirect labor,

  and $125,000 in administrative salaries.

•  Selling overhead costs, $79,000.

•  Maintenance on production equipment $10,000

•  Factory utility costs, $18,000.

•  Depreciation for the year was $100,000 of which $80,000 is related to factory operations and

  $20,000 is related to selling, general, and administrative activities.

•  Manufacturing overhead was applied to production.

•  Sales for the year totaled $800,000.

•  The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

  Beginning WIP inventory consisted of 2,400 units. During the year 10,000 units were started into production, and ending inventory consisted of 2,000 units 30% complete. The company uses the weighted average method.

a) Compute raw materials purchases

b) Compute the total actual manufacturing overhead

c) Compute the cost of goods manufactured

Answer 1

a.

Raw material purchases:

Raw material used in production	$97,000
Add: Ending raw material	40,000
Less: Beginning raw material	(22,000)
Raw material purchases	$115,000

b.

Total actual manufacturing overhead:

Indirect material	$12,000
Indirect labor	50,000
Maintenance on production equipment	10,000
Factory utility cost	18,000
Depreciation on factory operations	80,000
Total actual manufacturing overhead	$170,000

c.

Predetermined overhead rate = Budgeted overhead cost / Budgeted Direct labor cost

Predetermined overhead rate = $175,000 / 250,000 * 100 = 70%

Ending WIP:

Equivalent units = Units completed and transferred + Ending WIP

Equivalent units = [(2,400+10,000-2,000)*100%] + (2,000*30%)

Equivalent units = 10,400 + 600 = 11,000 units

Total cost = $57,000 + 493,000 = $550,000

Ending WIP total cost = $550,000/11,000*600 = $30,000

Schedule of Cost of Goods Manufactured
Direct material used	$85,000
Direct labor	240,000
Applied overhead ($240,000*70%)	168,000
Total manufacturing cost		$493,000
Add: Beginning work in process		57,000
Less: Ending work in process		(30,000)
Cost of goods manufactured		$520,000