Question

Use the following information to answer questions .

Allen Company applies manufacturing overhead on the basis of direct labor hours. Overhead was estimated to be $500,000 and direct labor hours were estimated to be 20,000.

During the year, Allen Company incurred actual overhead costs of $510,000, actual direct labor hours of 21,000, and actual direct labor costs of $615,000.

Allen Company had the following inventory balances at the beginning and end of the year:

January 1 December 31

Finished goods $315,000 $325,000

Work in process 450,000 470,000

Raw material 320,000 325,000

During the year, the company purchased $230,000 of raw materials.

1. The journal entry to transfer costs from work in process to finished goods includes a debit to which account?

a. Manufacturing overhead

b. Work in process

c. Finished goods

d. Cost of goods sold

e. None of the above

2. The journal entry to transfer costs from work in process to finished goods includes a credit to which account?

a. Manufacturing overhead

b. Work in process

c. Finished goods

d. Cost of goods sold

e. None of the above

3. Refer to the previous two questions. The amount of the entry is:

4. The journal entry to transfer costs from finished goods to cost of goods sold includes a debit to which account?

a. Manufacturing overhead

b. Work in process

c. Finished goods

d. Cost of goods sold

e. None of the above

5. The journal entry to transfer costs from finished goods to cost of goods sold includes a credit to which account?

a. Manufacturing overhead

b. Work in process

c. Finished goods

d. Cost of goods sold

e. None of the above

6. Refer to the previous two questions. The amount of the entry is:

7. The journal entry to dispose of over- or under- applied manufacturing overhead includes a debit to which account?

a. Manufacturing overhead

b. Work in process

c. Finished goods

d. Cost of goods sold

e. None of the above

8. The journal entry to dispose of over- or under- applied manufacturing overhead includes a credit to which account?

a. Manufacturing overhead

b. Work in process

c. Finished goods

d. Cost of goods sold

e. None of the above

9. Refer to the previous two questions. The amount of the entry is:

10. State the information need to calculate net income.

Answer 1

All direct materials, direct wages, direct expenses, special purchases and factory overheads recovered are debited to this account. The value of finished goods completed in a period and transferred to Finished Goods Control Account is credited to this account. The balance of this account represents the value of unfinished jobs.

This account is debited with the cost of finished goods transferred from work-in-progress control account and the amount of administration overheads absorbed. This account is credited with cost of sales by transferring to cost of sales account. The balance of this account represents the value of unsold stock at the end of the period.

This account is debited with the cost of goods sold by transfer from finished goods ledger control account and selling and distribution overheads absorbed. It is closed by transfer to Costing Profit and Loss Account.

So as per the above explanations the answer to the 1st four questions are as below:

1. The correct answer is option C i.e. Finished Goods

2. The correct answer is option b i.e. Work in Process

3.

Calculation of amount transferred from Work in Process to Finished Goods

Overhead allocation rate = Estimated Manufacturing Overhead/Estimated Direct labor hours = 500000/20000 = $25 per labor hour

Therefore Overhead transferred to Work in process account = Actual Direct labor hours * Overhead rate = 21000 * 25 = $525000 (Assuming Treatment of Over absorbed overhead of $ 15000 [525000 - 510000] is to Costing P&L account and revised Overhead rate is not calculated)

Direct material transferred to WIP = Opening + Purchase - Closing = 320000 + 230000 - 325000 = $225000

Direct labor cost = $615000

Calculation of WIP transferred to Finished goods = Opening + Cost of conversion - closing = 450000 + (525000 + 225000+615000) - 470000 = $1345000

4. The correct answer is option d i.e. Cost of goods sold account

Note: As per guidelines i answer only 1st 4 subparts. Thank you.