In: Accounting
The company Perfume Collection presents the following information
regarding the initial inventory of products in process for the month of June 2014:
No.Order | Direct raw material | Direct labor | Manufacturinf Overhead |
340 | $15000 | $8000 | $12000 |
408 | $11500 | $10000 | $9000 |
433 | $19000 | $13000 | $15000 |
During the month of June, costs of direct materials and direct labor are incurred for the following orders:
No. order | Direct Raw material | Direct labor |
340 | $4000 | |
360 | $10000 | 6000 |
408 | 5000 | |
433 | 7000 | |
450 | $12000 | 5500 |
503 | $16000 | 8000 |
Indirect manufacturing costs are applied at a rate of 130% of the cost of direct labor. All the orders that were kept in the inventory of process products at the beginning of the month were finished and sold with a margin of 35% over the cost of production. It is asked to calculate: a) Cost of production of each of the orders. b) Prepare a statement of results to know the gross profit obtained c) Balance of the final inventory of products in process
Solution:
Part 1 --- Cost of Production of each order
Job |
Total |
||||||
340 |
360 |
408 |
433 |
450 |
503 |
||
Beginning Inventory |
$35,000 |
$0 |
$30,500 |
$47,000 |
$112,500 |
||
Plus: Cost incurred during the period |
$0 |
||||||
Direct Materials |
$4,000 |
$10,000 |
$0 |
$0 |
$12,000 |
$16,000 |
$42,000 |
Direct labor |
$0 |
$6,000 |
$5,000 |
$7,000 |
$5,500 |
$8,000 |
$31,500 |
Applied Manufacturing Overhead (130% of direct labor cost) |
$0 |
$7,800 |
$6,500 |
$9,100 |
$7,150 |
$10,400 |
$40,950 |
Total cost of production |
$39,000 |
$23,800 |
$42,000 |
$63,100 |
$24,650 |
$34,400 |
$226,950 |
Part 2 – Gross Profit Obtained
The beginning orders are completed during the period.
Job |
Total |
|||
340 |
408 |
433 |
||
Beginning Inventory |
$35,000 |
$30,500 |
$47,000 |
$112,500 |
Plus: Cost incurred during the period |
||||
Direct Materials |
$4,000 |
$0 |
$0 |
$4,000 |
Direct labor |
$0 |
$5,000 |
$7,000 |
$12,000 |
Applied Manufacturing Overhead (130% of direct labor cost) |
$0 |
$6,500 |
$9,100 |
$15,600 |
Total cost of production |
$39,000 |
$42,000 |
$63,100 |
$144,100 |
Add: Profit 35% of Total Cost |
$13,650 |
$14,700 |
$22,085 |
$50,435 |
Total Sales Revenue |
$52,650 |
$56,700 |
$85,185 |
$194,535 |
Part 3 – balance of the final inventory of product in process
All the orders except 340, 408 and 433 is ending inventory.
Job |
Total |
|||
360 |
450 |
503 |
||
Beginning Inventory |
$0 |
|||
Plus: Cost incurred during the period |
||||
Direct Materials |
$10,000 |
$12,000 |
$16,000 |
|
Direct labor |
$6,000 |
$5,500 |
$8,000 |
|
Applied Manufacturing Overhead (130% of direct labor cost) |
$7,800 |
$7,150 |
$10,400 |
|
Total cost of production |
$23,800 |
$24,650 |
$34,400 |
$82,850 |
Final Inventory of Product in Process = $82,850
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you