Question

Problem 11-20B Manufacturing cost flow for monthly and annual accounting periods

Blanchard Manufacturing Company manufactures puzzles that depict the works of famous artists. The company rents a small factory and uses local labor on a part-time basis. The following accounting events affected Blanchard during its first year of operation. (Assume that all transactions are cash transactions unless otherwise stated.)

Transactions for First Month of Operation 2018

Issued common stock for $15,000.

Purchased $4,500 of direct raw materials and $600 of indirect raw materials. Indirect materials are recorded in a Production Supplies account.

Used $3,896 of direct raw materials.

Used 700 direct labor hours; production workers were paid $6 per hour.

Expected total overhead costs for the year to be $16,800 and direct labor hours used during the year to be 9,600. Calculate an overhead rate and apply the appropriate amount of overhead costs to Work in Process.

Paid $800 for salaries to administrative and sales staff.

Paid $700 for indirect manufacturing labor.

Paid $600 for rent and utilities on the manufacturing facilities.

Started and completed 956 puzzles; all costs were transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

Sold 800 puzzles at a price of $12 each.

Transactions for Remainder of 2018

Acquired an additional $150,000 by issuing common stock.

Purchased $46,000 of direct raw materials and $4,000 of indirect raw materials.

Used $41,050 of direct raw materials.

Paid production workers $6 per hour for 9,800 hours of work.

Applied the appropriate overhead cost to Work in Process Inventory.

Page 530Paid $8,800 for salaries of administrative and sales staff.

Paid $7,700 for the salary of the production supervisor.

Paid $6,600 for rental and utility costs on the manufacturing facilities.

Transferred 12,000 additional puzzles that cost $9.75 each from Work in Process Inventory to Finished Goods Inventory accounts.

Determined that $3,200 of production supplies was on hand at the end of the accounting period.

Sold 8,000 puzzles for $12 each.

Determine whether overhead is over- or underapplied. Close the Manufacturing Overhead account to Cost of Goods Sold.

Close the revenue and expense accounts.

Required

Open T-accounts and post transactions to the accounts.

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2018.

Answer 1

Cash A/c
Common Stock	15000	Direct Raw Materials	4500
Sales	9600	Production Supplies	600
Common Stock	150000	Direct Labour A/c	4200
Sales	96000	Salaries to Administrative Staff	800
		Indirect Manufacturing Labour	700
		Rent & utilities	600
		Direct Raw Materials	46000
		Production Supplies	4000
		Direct Labour A/c	58800
		Salaries to Administrative Staff	8800
		Indirect Manufacturing Labour	7700
		Rent & utilities	6600
		Balance c/f	127300
	270600		270600
Common Stock A/c
		Cash	15000
		Cash	150000
Balance c/f	165000
	165000		165000
Direct Raw Materials
Cash	4500	WIP A/c	3896
Cash	46000	WIP A/c	41050
		Balance c/f	5554
	50500		50500
Production Supplies
Cash	600	COGS A/c	1400
Cash	4000
			3200
	4600		4600
COGS
Finished Goods Inventory A/c	7800	To P&L A/c	94025
Production Supplies	1400
Finished Goods Inventory A/c	78000
Overhead Cost A/c	6825
	94025		94025

WIP A/c
Direct Raw Materials	3896	Finished Goods Inventory A/c	9321
Direct Labour A/c	4200	Finished Goods Inventory A/c	117000
Overhead Cost	1225
Direct Raw Materials	41050
Direct Labour A/c	58800
Overhead Cost	17150
	126321		126321
Direct Labour A/c
Cash	4200	WIP A/c	4200
Cash	58800	WIP A/c	58800
	63000		63000
Overhead Cost
Cash	800	WIP A/C	1225
Cash	700	WIP A/C	17150
Cash	600
Cash	8800
Cash	7700
Cash	6600
		COGS	6825
	25200		25200
Finished Goods Inventor a/c
WIP A/c	9321	COGS A/c	7800
WIP A/c	117000	COGS A/c	78000
		Closing Balance	40521
	126321		85800
Sales
		Cash	9600
P&L A/c	105600	Cash	96000
	105600		105600

Expected Overhead	16800
Direct Labour Hours	9600
Overhead Rate	1.75
Opening Stock	956
Sold	800
Closing	156
Value	9.75

Income Statement
Sales	105600
COGS	94025
Profit	11575
Balance Sheet
Assets
Cash	127300
Direct Materials	5554
Production Supplies	3200
Finished Goods Inventory	40521
Total Assets	176575
Liabilities
Common Stock	165000
Retained Earninsg	11575
Total Liabilities and Common Stock	176575
Schedule of COGS		Maufactured	Sold
Opening direct Material	0
Purchased	50500
Closing Direct Material	5554
Direct Material Used		44946	30528
Direct Labour		63000	42791
Manufacturing Overhead		18375	12481
COGS		126321	85800
Total Puzzles Manufactured		12956	8800
Cost per puzzle		9.75	9.75