Question

Sheffield Wings, Inc. manufactures airplanes for use in stunt shows. Sheffield’s factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible. Since each plane has different features (such as its shape, weight, and color), Sheffield uses a job order costing system to accumulate product costs.

At the end of 2016, Sheffield’s accountants developed the following expectations for 2017 based on the marketing department’s sales forecast:

Budgeted overhead cost		$1,093,000
Estimated machine hours		49,000
Estimated direct labor hours		10,000
Estimated direct materials cost		$1,520,000

Sheffield’s inventory count, completed on December 31, 2016, revealed the following ending inventory balances:

Raw Materials Inventory		$251,000
Work in Process Inventory		$626,000
Finished Goods Inventory		$2,390,000

The company’s 2017 payroll data revealed the following actual payroll costs for the year:

Job Title		Number Employed		Wage Rate per Hour		Annual Salary per Employee		Total Hours Worked per Employee
President and CEO		1				$228,000
Vice president and CFO		1				$178,000
Factory manager		1				$41,000
Assistant factory manager		1				$31,800
Machine operator		5		$14.5				2,250
Security guard, factory		2				$20,600
Forklift operator		2		$7.5				2,000
Corporate secretary		1				$36,800
Janitor, factory		2		$6				2,150

The following information was taken from Sheffield’s Schedule of Plant Assets. All assets are depreciated using the straight-line method.

Plant Asset		Purchase Price		Salvage Value		Useful Life
Factory building		$4,000,000		$150,000		20 Years
Administrative office		$650,000		$125,000		30 Years
Factory equipment		$2,000,000		$20,000		12 Years

Other miscellaneous costs for 2017 all paid in cash included:

Cost		Amount
Factory insurance (fully expired)		$13,300
Administrative office utilities		$5,300
Factory utilities		$31,000
Office supplies (fully consumed)		$6,000

Additional information about Sheffield’s operations in 2017 includes the following:

•	Raw materials purchases for the year amounted to $1,947,000. All materials were purchased on account.
•	The company used $1,860,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials.
•	Sheffield applied overhead to Work in Process Inventory based on direct materials cost.
•	Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory.
•	Sheffield uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000. All sales are made on account. (Note: This transaction requires two journal entries.) Prepare the journal entries to record Sheffield’s costs for 2017. (Use Salaries Payable and Wages Payable accounts for payroll costs.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Post entries in order presented in the problem. Round answers to 0 decimal places, e.g. 5,275.)

Answer 1

	Account title & Explanation			Debit	Credit
				Amount in $	Amount in $
a	Raw Material Inventory			1947000
		Accounts Payable			1947000
	To record the purchase of materials
b	Work in Process Inventory			1581000
		Raw Material Inventory			1581000
	Manufacturing Overhead			279000
		Raw Material Inventory			279000
	To record the issue of materials
c	Work in Process Inventory			163125		=2250*5*14.5
		Direct Labor			163125
	Manufacturing Overhead			55800		=2000*2*7.5+2150*2*6
		Indirect Labor			55800
	Direct Labour			163125
	Indirect Labor			55800
		Wages Payable			218925
	To record the incurrance of labor costs
d	Manufacturing Overhead			93400		=41000+31800+20600
	Selling and administrative expenses			442800		=228000+178000+36800
		Salary			536200
	Salary			536200
		Salary payable			536200
	To record the salary expense
e	Manufacturing Overhead			357500		=(4000000-150000)/20+(2000000-20000)/12
	Selling and administrative expenses			17500		=(650000-125000)/30
		Depreciation -Factory Building			192500	=(4000000-150000)/20
		Depreciation-Factory equipment			165000	=(2000000-20000)/12
		Depreciation -Administrative office			17500	=(650000-125000)/30
	Depreciation -Factory Building			192500		=(4000000-150000)/20
		Accumulated depreciation-factory Building			192500
	Depreciation-Factory equipment			165000		=(2000000-20000)/12
		Accumulated depreciation-factory equipment			165000
	Depreciation -Administrative office			17500		=(650000-125000)/30
		Accumulted depreication-Administrative office			17500
	To record the depreciation expense
f	Manufacturing overhead			44300
		Factory Insurance			13300
		Factory Utilities			31000
	Selling and administrative expenses			11300
		Administrative office Utilities			5300
		Office supplies			6000
	Factory Insurance			13300
	Factory Utilities			31000
	Administrative office Utilities			5300
	Office supplies			6000
		Cash			55600
	To record the payment and charging of expenses
g	Work In process Inventory			1136863.82
		Manufacturing overhead			1136863.82
	To record the application of predetermined overhead
Working Note	Calculation of predetermined overhead allocation rate for the year
	=	Manufacturing overhead/Direct labor cost
	=	=1093000/1520000%		71.9078947	% of labor
	So for	=1581000*71.9078947%		1136863.82
h	Finished goods Inventory			3450000
		Work In process Inventory			3450000
	To record the transfer to finished goods
i	Accounts receivable			6570000
		Sales			6570000
	Cost of goods sold			3650000		=6570000*100/180
		Finished goods Inventory			3650000
j Manufactured overhead 306863.82 Cost of goods sold 189936.42 Work In process inventory 2965.55 Finished goods inventory 113961.85 To record the charging of overapplied manufacturing overhead Working Note Actual Manufacturing overhead 830000 Manufactured overhead applied 1136863.82 Overapplied 306863.82 To be charged in the ratio of following balances Cost of goods sold 3650000 189936.42 Work In process inventory 56988.82 2965.55 Finished goods inventory 2190000 113961.85 5896988.82 306863.82 Work in Process Inventory Beginning Balance 626000 Finished goods Inventory 3450000 Raw Materials Inventory 1581000 Direct Labor 163125 Manufacturing overhead 1136863.8 Ending Balance 56988.816 Total 3506988.8 3506988.8 Finished goods Inventory Beginning balance 2390000 Cost of goods sold 3650000 Work in Process Inventory 3450000 Ending Balance 2190000 Total 5840000 Total 5840000

		Original	Adjustment	Adjusted balance
Adjusted work in process inventory		56988.82	2965.55	54023.27
Adjusted finished goods inventory		2190000	113961.85	2076038.15
Adjusted cost of goods sold		3650000	189936.42	3460063.58