Question

Marcelino Co.'s March 31 inventory of raw materials is $86,000. Raw materials purchases in April are $570,000, and factory payroll cost in April is $379,000. Overhead costs incurred in April are: indirect materials, $52,000; indirect labor, $24,000; factory rent, $30,000; factory utilities, $20,000; and factory equipment depreciation, $56,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $695,000 cash in April. Costs of the three jobs worked on in April follow.

	Job 306				Job 307				Job 308
Balances on March 31
Direct materials		$	30,000			$	44,000
Direct labor			22,000				15,000
Applied overhead			11,000				7,500
Costs during April
Direct materials			132,000				220,000			$	115,000
Direct labor			100,000				154,000				101,000
Applied overhead			?				?				?
Status on April 30	Finished (sold)				Finished (unsold)					In process

4-a. Compute gross profit for April.
4-b. Show how to present the inventories on the April 30 balance sheet.

Answer 1

Solution

Marcelino Co

1. Computation of gross profit and presentation of inventories in the April 30 balance sheet:

Gross profit = sales – cost of goods sold

= $695,000 – ($282,000 - $4,500) = $417,500

Gross Profit for April = $417,500

Presentation of inventories on April 30 Balance Sheet –

Inventories
Raw Materials	$125,000
Work in Process Inventory	$266,500
Finished Goods	$517,500
Total Inventories	$909,000

Computations:

	Job 306	Job 307	Job 308	Total
From March
Direct Materials	$30,000	$44,000
Direct Labor	$22,000	$15,000
Applied Overhead (50% x Direct Labor)	$11,000	$7,500
Beginning goods in process	$63,000	$66,500	0	$129,500
For April
Direct Materials	$132,000	$220,000	$115,000	$467,000
Direct Labor	$100,000	$154,000	$101,000	$355,000
Applied Overhead (50% x Direct Labor)	$50,000	$77,000	$50,500	$177,500
Total costs added in April	$282,000	$451,000	$266,500	$999,500
Total Costs, April 30	$345,000	$517,500	$266,500	$1,129,000
Status on April 30	Finished (Sold)	Finished (Unsold)	In Process
April 30, Costs included in	Cost of Goods Sold	Finished Goods Inventory	Work in Process Inventory

Ending balance of raw material inventory is computed as follows,

March 31 balance $74,000

Add: Purchases     $518,000 ($570,000 Less of indirect materials, $52,000)

Total                     $592,000

Less: to Production $467,000

April 30, Balance $125,000        

Computations:

1. Journal entries for the month of April:

Date/Transaction	Account Titles and Explanation	Ref. No.	Debit	Credit
a.	Raw materials Inventory		$570,000
	Accounts Payable			$570,000
	(To record purchase of raw materials on account)
b.	Work in Process Inventory		$467,000
	Raw materials Inventory			$467,000
	(To record direct materials used in production)
c.	Work in Process Inventory		$355,000
	Cash			$355,000
	(To record direct labor paid and assigned to work in process inventory)
d.	Factory Overhead		$24,000
	Cash			$24,000
	(To record indirect labor assigned to Factory Overhead)
e.	Work in Process Inventory		$177,500
	Factory Overhead			$177,500
	(To record overhead cost applied to work in process inventory)
f.	Factory Overhead		$52,000
	Raw materials Inventory			$52,000
	(To record actual cost of indirect materials)
f.	Factory Overhead		$30,000
	Cash			$30,000
	(To record factor rent paid)
f.	Factory Overhead		$20,000
	Cash			$20,000
	(To record utilities paid)
f.	Factory Overhead		$56,000
	Accumulated Depreciation - Factory Equipment			$56,000
	(To record depreciation on factory building)
g.	Finished Goods Inventory		$733,000
	Work in Process Inventory			$733,000
	(To record transfer of Jobs 306 and 307 to finished goods inventory)
h.	Cost of Goods Sold		$282,000
	Finished Goods Inventory			$282,000
	(To record COGS for Job 306)
i.	Cash		$695,000
	Sales			$695,000
	(To record sale of Job 306)
j.	Cost of Goods Sold		$4,500
	Factory Overhead			$4,500
	(To assign under applied overhead to cost of goods sold)

2. Schedule of cost of goods manufactured:

Marcelino Company
Schedule of Cost of Goods Manufactured
For the month ended April 30
Direct materials used	$467,000
Direct labor	$355,000
Factory overhead applied	$177,500
Total manufacturing costs	999,500
Add: Beginning Work in process	129,500
Total cost of work in process	$1,129,000
Less: Ending work in process	$266,500
Cost of goods manufactured	$859,500