Question

Comprehensive Problem #3

Part 1:
Wilson Mfg, Inc. produces sport caps for various professional teams throughout the region.
The company uses a continuous job cost accounting system to manufacture their products.

Wilson’s trial balance on June 1 is as follows:
Wilson Mfg, Inc.
Trial Balance
June 1, 2014
Account Debit Credit
Cash $ 14,000
Accounts Receivable 155,000
Raw Materials Inventory 5,700
Work-in-Process Inventory 39,400
Finished Goods Inventory 20,400
Plant Assets 200,000
Accumulated Depreciation $ 72,000
Accounts Payable 127,000
Wages Payable 1,700
Common Stock 142,000
Retained Earnings 91,800
Sales Revenue
Cost of Goods Sold
Manufacturing Overhead
Selling & Administrative Expenses .
Totals $ 434,500 $ 434,500

The following transactions were completed during the month of June.
a. Collections on account, $152,000.
b. Selling and administrative expenses incurred and paid, $28,000.
c. Payments on account, $36,000.
d. Materials purchases on account, $26,700.
e. Materials requisitioned and used in production:
(1) Direct materials, $8,500
(2) Indirect materials, $1,000
f. Wages incurred during June:
(1) Direct labor, $20,100
(2) Indirect labor, $14,900
g. Wages paid in June include the balance in Wages Payable ($1,700) at May 31,
plus $32,200 of wages incurred during June.
h. Depreciation on plant and equipment, $2,600.
i. Manufacturing overhead is allocated at the predetermined overhead rate of 50%
of direct labor cost.
j. The company produced 11,375 caps during June for a total cost of $45,500.
k. Sales on account during June, $111,000. Cost of the products sold was $50,600.
l. Adjusted for over-allocated or under-allocated manufacturing overhead.

Requirements:
(1) Open T-accounts (or Balance Column account forms) for each of the accounts listed in the
June 1 Trial Balance (with their balances, using Bal. as the reference) .
(2) Journalize the transactions (a. through l.) for the company, using the standard job cost
accounts.
(3) Post the journal entries to the T-accounts (or Balance Column account forms) using the
transaction letters as a reference.
(4) Prepare a trial balance as of June 30, 2014.

Comprehensive Problem #3
Part 2:
Wilson Mfg, Inc. is considering expansion of operations since current market prospects look
very favorable as well in the near future. The anticipated selling price of sport caps is $7.50.
Variable costs of producing each cap is $3.00. Annual fixed costs are estimated to be
$42,660. Company management requires some additional information with which to
determine the feasibility of this proposed expansion.

Requirements:
(1) Determine the company’s contribution margin.
(2) Determine the company’s contribution ratio.
(3) Calculate the company’s breakeven point in units of product.
(4) Calculate the company’s breakeven point in sales dollars.
(5) Determine the number of units of product that the company will have to produce and sell
to earn a profit of $40,000 annually. (Round answer to the nearest whole unit)

Answer 1

Part 1:

1 & 3. Cash:

Beginning Balance	14,000	b.	28,000
a.	152,000	c.	36,000
		g.	33,900
Ending Balance	68,100

Accounts Receivable:

Beginning Balance	155,000	a.	152,000
k.	111,000
Ending Balance	114,000

Raw Materials Inventory:

Beginning Balance	5,700	e.(1)	8,500
d.	26,700	e. (2)	1,000
Ending Balance	22,900

Work in Process Inventory:

Beginning Balance	39,400	j.	45,500
e. ( 1)	8,500
f.	20,100
i.	10,050
Ending Balance	32,550

Finished Goods Inventory:

Beginning Balance	20,400	k.	50,600
j.	45,500
Ending Balance	15,300

Plant Assets:

Beginning Balance	200,000
Ending Balance	200,000

Accumulated Depreciation :

		Beginning Balance	72,000
		h.	2,600
		Ending Balance	74,600

Manufacturing Overhead:

e. ( 2)	1,000	i.	10,050
f (2)	14,900
h.	2,600	l.	8,450
	28,500		28,500

Accounts Payable:

c.	36,000	Beginning Balance	127,000
		d.	26,700
		Ending Balance	117,700

Wages Payable:

g.	33,900	Beginning Balance	1,700
		f.(1)	20,100
		f. (2)	14,900
		Ending Balance	2,800

Sales Revenue:

		k.	111,000
		Balance	111,000

Cost of Goods Sold:

k.	50,600
l.	8,450
Balance	59,050

Selling and Administrative Expenses:

b.	28,000
Balance	28,000

2. In the books of Wilson Mfg. Inc. :

Transaction / Event	Account Titles	Debit	Credit
		$	$
a.	Cash	152,000
	Accounts Receivable		152,000
b.	Selling and Administrative Expense	28,000
	Cash		28,000
c.	Accounts Payable	36,000
	Cash		36,000
d.	Raw Material Inventory	26,700
	Accounts Payable		26,700
e.	Work in Process Inventory	8,500
	Manufacturing Overhead	1,000
	Raw Materials Inventory		9,500
f.	Work in Process Inventory	20,100
	Manufacturing Overhead	14,900
	Wages Payable		35,000
g.	Wages Payable	33,900
	Cash		33,900
h.	Manufacturing Overhead	2,600
	Accumulated Depreciation		2,600
i.	Work in Process Inventory	10,050
	Manufacturing Overhead		10,050
j.	Finished Goods Inventory	45,500
	Work in Process Inventory		45,500
k.	Accounts Receivable	111,000
	Sales Revenue		111,000
k.	Cost of Goods Sold	50,600
	Finished Goods Inventory		50,600
l.	Cost of Goods Sold	8,450
	Manufacturing Overhead		8,450

4.

Wilson Mfg. Inc.
Trial Balance
June 30, 2014
Account Titles	Debit	Credit
	$	$
Cash	68,100
Accounts Receivable	114,000
Raw Materials Inventory	22,900
Work in Process Inventory	32,550
Finished Goods Inventory	15,300
Plant Assets	200,000
Accumulated Depreciation		74,600
Accounts Payable		117,700
Wages Payable		2,800
Common Stock		142,000
Retained Earnings		91,800
Sales Revenue		111,000
Cost of Goods Sold	59,050
Selling and Administrative Expenses	28,000
Totals	$ 539,900	$ 539,900

Part 2:

1. Contribution Margin = Unit Selling Price - Unit Variable Cost = $ (7.50 - 3.00) = $ 4.50.

2. Contribution Ratio = Contribution Margin / Selling Price * 100 = $ 4.50 / $ 7.50 * 100 = 60 %.

3. Break-even point in units = Total Fixed Cost / Unit Contribution Margin = $ 42,660 / $ 4.50 = 9,480 units.

4. Break-even point in sales dollars = Total Fixed Cost / Contribution Margin Ratio = $ 42,660 / 0.60 = $ 71,100

5. Number of units to earn target profit of $ 40,000 = ( Fixed Costs + Target Profit) / Unit Contribution Margin = $ ( 42,660 + 40,000 ) / $ 4.50 = 18,368.89 units