Question

Major League Bat Company manufactures baseball bats. In addition to its work in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials. Its factory payroll costs include direct labor for production and indirect labor. All materials are added at the beginning of the process, and conversion costs are applied uniformly throughout the production process.

Required:

You are to maintain records and produce measures of inventories to reflect the July events of this company. The June 30 balances: Raw Materials Inventory, $27,000; Work in Process Inventory, $7,885 ($3,060 of direct materials and $4,825 of conversion); Finished Goods Inventory, $190,000; Sales, $0; Cost of Goods Sold, $0; Factory Payroll Payable, $0; and Factory Overhead, $0.

1. Prepare journal entries to record the following July transactions and events.

1. Purchased raw materials for $155,000 cash (the company uses a perpetual inventory system).
2. Used raw materials as follows: direct materials, $86,540; and indirect materials, $14,000.
3. Recorded factory payroll payable costs as follows: direct labor, $212,250; and indirect labor, $29,000.
4. Paid factory payroll cost of $241,250 with cash (ignore taxes).
5. Incurred additional factory overhead costs of $88,000 paid in cash.
6. Allocated factory overhead to production at 50% of direct labor costs.

2. Information about the July inventories follows. Use this information with that from part 1 to prepare a process cost summary, assuming the weighted-average method is used. (Round "Cost per EUP" to 2 decimal places.)

     

Units
Beginning inventory	9,000	units
Started	19,000	units
Ending inventory	13,000	units
Beginning inventory
Materials—Percent complete	100	%
Conversion—Percent complete	75	%
Ending inventory
Materials—Percent complete	100	%
Conversion—Percent complete	40	%

     
    

3. Using the results from part 2 and the available information, make computations and prepare journal entries to record the following:

7. Total costs transferred to finished goods for July.
8. Sale of finished goods costing $285,700 for $665,000 in cash.

4. Post entries from parts 1 and 3 to the following general ledger accounts.

5. Compute the amount of gross profit from the sales in July. (Add any underapplied overhead to, or deduct any overapplied overhead from, the cost of goods sold.)

Answer 1

1.

Account Titles and Explanation	Debit	Credit
Raw materials inventory	155000
Cash		155000
(To record raw materials purchased for cash)
Work in process inventory	86540
Factory overhead	14000
Raw materials inventory		100540
(To record direct and indirect materials used)
Work in process inventory	212250
Factory overhead	29000
Cash		241250
(To record payment of factory payroll payable)
Factory overhead	88000
Cash		88000
(To record additional factory overhead costs paid)
Work in process inventory	106125
Factory overhead (50% x $212250)		106125
(To record factory overhead allocated to production)

2.

Major League Bat Company
Process Cost Summary - Weighted Average
Flow of production units:	Physical Units	Equivalent Units
		Materials	Conversion
Units to be accounted for
Beginning WIP inventory	9000
Units started this period	19000
Total units to be accounted for	28000
Units accounted for
Units completed and transferred out	15000	15000	15000
Units in ending WIP inventory	13000	13000	5200
Total units accounted for	28000	28000	20200
Costs:	Materials	Conversion	Total
Costs to be accounted for
Costs in beginning WIP inventory	3060	4825	7885
Current period costs	86540	318375	404915
Total costs to be accounted for $	89600	323200	412800
Costs per equivalent unit	Materials	Conversion	Total
Total costs incurred	89600	323200
Divide by equivalent units	28000	20200
Cost per equivalent unit $	3.20	16.00	19.20
Costs accounted for
Costs assigned to units transferred out
Materials (15000 x $3.20)	48000		48000
Conversion (15000 x $16)		240000	240000
Total costs of units transferred out	48000	240000	288000
Costs assigned to ending WIP
Materials (13000 x $3.20)	41600		41600
Conversion (5200 x $16)		83200	83200
Total ending WIP inventory	41600	83200	124800
Total costs accounted for $	89600	323200	412800

3.

Account Titles and Explanation	Debit	Credit
Finished goods inventory	288000
Work in process inventory		288000
(To record costs transferred to finished goods)
Cash	665000
Sales revenue		665000
(To record cash sales)
Cost of goods sold	285700
Finished goods inventory		285700
(To record the cost of goods sold)

4. General ledger accounts required has not been provided.

5. Gross profit: $354425

Sales		665000
Cost of goods sold	285700
Add: Under-applied overheads [($14000 + 29000 + 88000) - $106125]	24875
Adjusted cost of goods sold		310575
Gross profit $		354425