Question

Best Products Inc. Uses a job-order system in which overhead is applied to jobs on the basis od DIRECT LABOR COST.

At he beginning of the year the inventories are follows:

• Raw Material ………………………. $ 42,000
• Work in Process …………………….   30,000
• Finished Goods ……………………… 58,000

During the year, the following transactions were completed:

1. Raw material purchased on account, $ 190,000 (crédito)
2. Raw material requisitioned for use in production, $200,000 ( 80% direct, 20 % indirect )
3. Cost for employees services were incurred as follows: DIRECT LABOR $200,000; indirect labor $82,000 y Administrative salaries $90,000
4. Utilities expense incurred in production ( energy, wáter , etc) $ 75,000.
5. Advertising expense incurred, $ 120,000
6. Prepaid insurance , $ 30,000 ( 90% production)
7. Depreciation on Assets, $ 190,000 ( 85% production )
8. ‘ Manufacturing Overhead’ se aplicó a la producción a razón de 200 % del costo de labor directo. ( hint: Direct labor cost x 200%)
9. Goods that had cost $720,000 to manufacturing were completed and transferred to Finished Goods inventory
10. Sales for the year totaled $1,200,000. Costo of Sales was $740,000.

REQUIRED:

1. Prepared journal entries to record the transactions
2. Prepare T ACCOUNTS ONLY FOR : Raw Material, Work in Process, Finished Goods, Manufacturing Overhead
3. Prepare the ‘Income Statement’ for the year..

Answer 1

Transaction	Account Titles and Explanation	Debit	Credit
a.	Raw materials	190000
	Accounts payable		190000
	(To record raw material purchased on account)
b.	Work in process (80% x $200000)	160000
	Manufacturing overhead (20% x $200000)	40000
	Raw materials		200000
	(To record raw materials requisitioned)
c.	Work in process	200000
	Manufacturing overhead	82000
	Salaries expense	90000
	Salaries and wages payable		372000
	(To record cost for employee services incurred)
d.	Manufacturing overhead	75000
	Cash		75000
	(To record utilities expense incurred)
e.	Advertising expense	120000
	Cash		120000
	(To record advertising expense incurred)
f.	Manufacturing overhead (90% x $30000)	27000
	Insurance expense (10% x $30000)	3000
	Prepaid insurance		30000
	(To record prepaid insurance expired)
g.	Manufacturing overhead (85% x $190000)	161500
	Depreciation expense (15% x $190000)	28500
	Accumulated depreciation		190000
	(To record depreciation on assets)
h.	Work in process	400000
	Manufacturing overhead (200% x $200000)		400000
	(To record manufacturing overhead applied)
i.	Finished goods	720000
	Work in process		720000
	(To record goods completed and transferred)
j.	Accounts receivable/Cash	1200000
	Sales revenue		1200000
	(To record sales for the year)
	Cost of goods sold	740000
	Finished goods		740000
	(To record the cost of sales)

Raw Materials
Beg. Bal.	42000
a.	190000	200000	b.
End. Bal.	32000
Work in Process
Beg. Bal.	30000
b.	160000	720000	i.
c.	200000
h.	400000
End. Bal.	70000
Finished Goods
Beg. Bal.	58000
i.	720000	740000	j.
End. Bal.	38000
Manufactuing Overhead
Beg. Bal.	0
b.	40000	400000	h.
c.	82000
d.	75000
f.	27000
g.	161500
End. Bal.	14500

Best Products Inc.
Income Statement
For the Year
Sales revenue		1200000
Cost of goods sold*		725500
Gross profit		474500
Operating expenses:
Salaries expense	90000
Advertising expense	120000
Insurance expense	3000
Depreciation expense	28500	241500
Net income		233000

*The over-applied manufacturing overheads of $14500 are adjusted to the cost of goods sold.

Cost of goods sold = $740000 - $14500 = $725500