Less ending finished goods inventory 277000 cost of

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Less ending finished goods inventory .................................. (277,000 ) Cost of goods sold (b) ............................................................ $ 843,450 Part 2: Summary journal entries recording transactions. a. May 31 Raw Materials Inventory ............................................... 135,000 Accounts Payable .................................................... 135,000 Purchased raw materials. b. May 31 Goods in Process Inventory .......................................... 93,500 Raw Materials Inventory .......................................... 93,500 Used direct materials. c. May 31 Factory Overhead .......................................................... 31,000 Raw Materials Inventory ......................................... 31,000 Used indirect materials. 20-20
Chapter 20 - Process Cost Accounting Problem 20-1A (Continued ) d. May 31 Factory Payroll ............................................................... 791,500 Cash .......................................................................... 791,500 Incurred payroll cost. e. May 31 Goods in Process Inventory .......................................... 352,000 Factory Payroll ......................................................... 352,000 Used direct labor. f. May 31 Factory Overhead .......................................................... 439,500 Factory Payroll ......................................................... 439,500 Used indirect labor. g. May 31 Factory Overhead .......................................................... 43,000 Other Accounts ........................................................ 43,000 Incurred other overhead costs. h. May 31 Goods in Process Inventory .......................................... 387,200 Factory Overhead ..................................................... 387,200 Applied overhead at 110% of direct labor cost. i. May 31 Finished Goods Inventory ............................................. 801,450 Goods in Process Inventory .................................... 801,450 Transferred completed products from production to finished goods inventory. j. May 31 Accounts Receivable .................................................... 1,500,000 Sales ......................................................................... 1,500,000 Sold finished goods. May 31 Cost of Goods Sold ....................................................... 843,450 Finished Goods Inventory ...................................... 843,450 To record cost of goods sold for May.
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Chapter 20 - Process Cost Accounting Problem 20-2A (50 minutes) Part 1 (a) and (b) Equivalent units with respect to direct materials and direct labor Direct Direct Equivalent units of production (EUP) Materials Labor Units completed and transferred out .................... 735,000 735,000 Units of ending goods in process ......................... Direct materials (207,000 x 100%) ................... 207,000 Direct labor (207,000 x 90%) ............................ _______ 186,300 Total equivalent units of production ..................... 942,000 921,300 Part 2 Cost per equivalent unit of production Direct Materials Direct Labor Costs of beginning goods in process .......................... $ 244,920 $ 69,098 Costs incurred this period ............................................ 1,639,080 1,312,852 Total costs ....................................................................... $1,884,000 $1,381,950 ÷ Equivalent units of production .................................. 942,000 EUP 921,300 EUP Cost per equivalent unit of production ........................ $2.00 per EUP $1.50 per EUP Part 3 Assigning product costs to units Costs transferred out Direct materials (735,000 EUP x $2.00 per EUP) ........ $1,470,000 Direct labor (735,000 EUP x $1.50 per EUP) ............... 1,102,500 Total costs transferred out .......................................... $2,572,500 Costs of ending goods in process Direct materials (207,000 EUP x $2.00 per EUP) ........ 414,000 Direct labor (186,300 EUP x $1.50 per EUP) ............... 279,450 Total costs of ending goods in process ..................... 693,450 Total costs accounted for* ............................................ $3,265,950 *This equals the sum of the total direct materials cost and the total direct labor costs ($1,884,000 + $1,381,950 = $3,265,950). 20-22
Chapter 20 - Process Cost Accounting Problem 20-2A (Concluded ) Part 4 MEMORANDUM TO: FROM: DATE: RE: Percentage of Completion Error Analysis If the units in ending inventory are 65% complete instead of 90% with respect to labor, the number of equivalent units in ending inventory with respect to labor is overstated, and the total equivalent units produced for the period is also overstated. If the correct percentage of completion with respect to labor (65%) were used, the direct labor cost per equivalent unit would be larger. This would increase the total cost of goods transferred out. The total cost of ending goods in process would decrease due to the smaller number of equivalent units of labor remaining in ending inventory. Regarding financial statements, this error causes an understatement of cost of goods sold and an overstatement of net income on the income statement for September.

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