Question

Process costing system Eminence Corporation makes rocking chairs. The chairs move through two departments during production. Lumber is cut into chair parts in the cutting department, which transfers the parts to the assembly department for completion. The company sells the unfinished chairs to hobby shops. The following transactions apply to Eminence's operations for its first year, 2018. (Assume that all transactions are for cash unless otherwise states.)

1. The company was started when it acquired a $47000 cash contribution from the owners.

2. The company purchased $15000 of direct raw materials and $400 of indirect materials. Indirect materials are capitalized in the Production Supplies account.

3. Direct materials totaling $7000 were issued to the cutting department.

4. Labor cost was $28200. Direct labor for the cutting and assembly departments was $10000 and $13000, respectively. Indirect labor costs were $5200.

5. The predetermined overhead rate was $0.5 per direct labor dollar in each department.

6. Actual overhead costs other than indirect materials and indirect labor were $6400 for the year.

7. The cutting department transferred $12500 of inventory to the assembly department.

8. The assembly department transferred $20500 of inventory to finished goods.

9. The company sold inventory costing $18500 for $30000.

10. The selling and administrative expenses were $3000.

11. A physical count revealed $100 of production supplies on hand at the end of 2018.

12. Assume that over- or underapplied overhead is insignificant.

Required

a. Record the data in T-accounts.

b. Record the closing entry for over- or underapplied manufacturing overhead, assuming that the amount is insignificant.

c. Close the revenue and expense accounts.

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

Answer 1

Cash					Owner's Capital
1	47000	15400	2				47000	1
9	30000	28200	4
		6400	6
		3000	10
End. Bal.	24000				End. Bal.		47000
Raw Materials					Production Supplies
2	15000	7000	3		2	400
							300	11
End. Bal.	8000				End. Bal.	100
Work in Process-Cutting Department					Work in Process-Assembly Department
3	7000	12500	7		4	13000	20500	8
4	10000				5	6500
5	5000				7	12500
End. Bal.	9500				End. Bal.	11500
Manufacturing Overheads					Finished Goods
4	5200	11500	5		8	20500	18500	9
6	6400	400	Cl. Entry
11	300
End. Bal.	0				End. Bal.	2000
Cost of Goods Sold					Sales Revenue
9	18500						30000	9
Cl. Entry	400				Income summary	30000
		18900	Income summary
End. Bal.	0				End. Bal.		0
Selling and Administrative Expense					Income Summary
10	3000	3000	Income summary		Cost of goods sold	18900	30000	Sales revenue
					S&A expense	3000
End. Bal.	0				End. Bal.		8100

Cost of Goods Manufactured Schedule
For the Year 2018
Direct materials	7000
Direct labor	23000
Manufacturing overhead applied	11500
Total current manufacturing costs	41500
Add: Beginning work in process	0
Total cost of work in process	41500
Less: Ending work in process	21000
Cost of goods manufactured $	20500
Add: Beginning finished goods	0
Cost of goods available for sale	20500
Less: Ending finished goods	2000
Unadjusted Cost of goods sold $	18500
Add: Underapplied manufacturing overheads	400
Adjusted Cost of goods sold $	18900
Income Statement
For the Year Ended 2018
Sales	30000
Cost of goods sold	18900
Gross profit	11100
Selling and administrative expense	3000
Net income	8100
Balance Sheet
2018
Assets
Cash	24000
Raw materials	8000
Production supplies	100
Work in process	21000
Finished goods	2000
Total assets	55100
Liabilities and Owner's Capital
Owner's capital	47000
Retained earnings	8100
Total liabilities and owner's capital	55100