Question

Auto-Motion is a lean manufacturer of self-driving wheelchairs. The company budgets $560,000 of conversion costs and 2,000 production hours for the next year. Each wheelchair requires 30 production hours and materials costs of $4,480. The company started and completed 93 wheelchairs during the year and sold 85. Each wheelchair is sold for $17,000. Actual conversion costs equal applied conversion costs.

Required
1. Prepare journal entries to record (a) the purchase of raw materials on credit to produce 98 units, (b) applied conversion costs to the production of 93 units, (c) actual conversion costs of $781,200 (credit “Various Accounts”), (d) sale of 85 units on credit, and (e) ending inventory and cost of goods sold.
2. Compute the ending balances of Work in Process Inventory, Finished Goods Inventory, and Conversion Costs. Assume each of these inventory accounts began the year with a balance of zero.

Answer 1

1) Credit Debit $439,040 $439,040 Remarks and Workings [98 units x $4,480] (To record raw materials purchased on account) [93 units x 30 hours x ($560,000 / 2,000)] (To conversion costs applied to production) $781,200 $781,200 $781,200 Transaction General Journal Raw Materials Inventory Accounts Payable b) Work in Process Inventory Conversion costs Conversion costs Various Accounts d) Accounts Receivable Sales revenue e-1) Finished goods Inventory Work in Process Inventory e-2) Cost of Goods Sold Finished goods Inventory $781,200 $1,445,000 $1,445,000 $1,197,840 (To record actual conversion costs incurred) (85 units x $17,000) (To record sale on account) [Ref: Workings] |(To record cost of goods transferred to finished goods) [Ref: Workings] |(To cost of finished goods sold) $1,197,840 $1,094,800 $1,094,800 Workings: $416,640 [93 units x $4,480] $781,200 [Ref: Entry #(1b)] $1,197,840 Direct materials cost Convesion costs applied to production Total manufacturing costs Number of units produced Unit product cost Number of units sold Cost of goods sold 93 $12,880 ($1197840 / 93 units] 85 $1,094,800 ($12880 x 85 units]

2) Direct materials cost per unit Number of units in work in process Cost of ending work in process $4,480 5 [98 - 93] $22,400 [$4480 x 5 units] Unit product cost Number of units in finished goods Cost of ending finished goods $12,880 [As calculated in Part-1] 8 [93-85] $103,040 ($12880 x 8 units] Convesion costs applied to production Actual conversion costs incurred Balance in conversion costs $781,200 [Ref: Entry #(1b)] $781,200 [Ref: Entry #1(c)] $0 [$781200 - $781200]