Question

Ryde and Rowe Inc. had the following account balances as of January

1. Direct Materials Inventory $ 8,700

Work in Process Inventory 76,500

Finished Goods Inventory 53,000

Manufacturing Overhead 0

During the month of January, all of the following occurred.

Direct labor costs were $47,000 for 1,800 hours worked.

Direct materials costing $26,000 and indirect materials costing $5,100 were purchased.

Sales commissions of $17,500 were earned by the sales force.

$26,000 worth of direct materials were used in production.

Advertising costs of $6,300 were incurred.

Factory supervisors earned salaries of $11,371.

Indirect labor costs for the month were $3,000.

Monthly depreciation on factory equipment was $4,500.

Utilities expense of $6,659 was incurred in the factory.

Equipment with manufacturing costs of $69,000 were transferred to finished goods.

Monthly insurance costs for the factory were $4,200.

$5,000 in property taxes on the factory were incurred and paid.

Equipment with manufacturing costs of $91,902 were sold for $167,095.

Required:

a. If Ryde and Rowe assigns manufacturing overhead of $34,400 (i.e, funds set aside for payment), what will be the balances in the Direct Materials, Work in Process, and Finished Goods Inventory accounts at the end of January?

b. As of January 31, what will be the balance in the Manufacturing Overhead account?​

c. What was Ryde and Rowe’s operating income for January?

Answer 1

Solution:

a) Inventory accounts:

Particulars	Amount
Direct materials inventory, Jan 1	$8,700
Add: Direct materials purchase	$26,000
Less: Direct materials used in production	($26,000)
Direct materials inventory Dec 31	$8,700

Particulars	Amount
Work in progress inventory Jan1	$76,500
Add: Direct materials used	$26,000
Add: Direct labor used	$47,000
Add: manufacturing overhead	$34,400
Less: Finished goods transferred out	($69,000)
Work in progress inventory Dec 31	$114,900

Particulars	Amount
Finished goods inventory Jan1	$53,000
Add: Goods transferred in	$69,000
Less: cost of goods sold	($91,902)
Finished goods inventory Dec 31	$30,098

b)

Manufacturing overhead Jan1	$0
Add: Indirect materials purchased	$5,100
Add: Supervisor salaries	$11,371
Add: Indirect labor cost	$3,000
Add: Depreciation	$4,500
Add: Factory utilities	$6,659
Add: Factory insurance	$4,200
Add: Property taxes on factory	$5,000
Less: Manufacturing overhead applied	($34,400)
Manfacturing overhead Jan 31	$5,430

c)

Operating income for the month of January
Particulars	Amount	Amount
Revenues		$167,095
Less: Cost of goods sold		($91,902)
Gross profit		$75,193
Less: Operating expenses:
Sales commissions	17,500
Advertising expense	$6,300	($23,800)
Operating income		$51,393

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