Question

Conundrum, Inc. manufactures puzzles. Due to a fire in the administrative offices, the accounting records for September of the current year were partially destroyed. You have been able to piece together the following information from the ledger.

Raw-Material Inventory

Accounts Payable

		40,000				12,000                   Bal. 8/31
Bal. 9/30                    45,000

Work-in-Process Inventory

Finished-Goods Inventory

Bal. 8/31                      8,000

Bal. 8/31                    35,000

Manufacturing Overhead

Cost of Goods Sold

60,000

Wages Payable

Sales Revenue

1,700                     Bal 9/30

Accounts Receivable

Bal. 8/31                     8,000

Upon examining various source documents and interviewing several employees, you were able to gather the following additional information.

a.	Collections of accounts receivable during September amounted to $205,000.
b.	Sales revenue in September was 120 percent of cost of goods sold. All sales are on account.
c.	Overhead is applied using an annual predetermined overhead rate using direct-labor hours (based on practical capacity).
d.	The budgeted overhead for the current year is $720,000.
e.	Budgeted direct-labor cost for the current year is $960,000. The direct-labor rate is $20 per hour.
f.	The accounts payable balance on September 30 was $1,000. Only purchases of raw material are credited to accounts payable. A payment of $81,000 was made on September 15.
g.	September’s cost of goods sold amounted to $182,000.
h.	The September 30 balance in finished-goods inventory was $3,250.
i.	Payments of $79,500 were made to direct-labor employees during September. The August 31 balance in the Wages Payable account was $1,000.
j.	The actual manufacturing overhead for September was $60,000.
k.	An analysis of the puzzles still in process on September 30 revealed that so far these items have required 500 hours of direct labor and $20,600 of direct material.

Required: a. Calculate the following amounts. 1. Sales revenue for September. 2 September 30 balance in accounts receivable 3. Cost of raw material purchased during September 4. September 30 balance in work-in-process inventory 5. Direct labor added to work in process during September 6. Applied overhead for September. 7. Cost of goods completed during September 8. Raw material used during September. 9. August 31 balance in raw-material inventory. 10. Overapplied or underapplied overhead for September.

Answer 1

a.

1	Sales revenue for September = 120% x $182000 = $218400
2	September 30 balance in accounts receivable = $8000 + 218400 - 205000 = $21400
3	Cost of raw material purchased during September = $1000 + 81000 - 12000 = $70000
4	September 30 balance in work-in-process inventory = $20600 + (500 x $20) + (500 x $15) = $20600 + 10000 + 7500 = $38100
5	Direct labor added to work in process during September = $79500 + 1700 - 1000 = $80200
6	Applied overhead for September = 4010 x $15 = $60150
7	Cost of goods completed during September = $182000 + 3250 - 35000 = $150250
8	Raw material used during September = $40000
9	August 31 balance in raw material inventory = $40000 + 45000 - 70000 = $15000
10	Overapplied or underapplied overhead for September = $60150 - 60000 = $150 overapplied

Working:

Predetermined overhead rate = Budgeted overhead/Budgeted direct labor hours = $720000/48000 = $15 per direct labor hour

Budgeted direct labor hours = Budgeted direct labor cost/Direct labor rate = $960000/$20 = 48000

Actual direct labor hours during September = $80200/$20 = 4010

b.

Raw Material Inventory					Accounts Payable
Bal. 8/31	15000				Bal. 8/31		12000
3	70000	40000	8		f.	81000	70000	3
Bal. 9/30	45000				Bal. 9/30		1000	f.
Work-in-Process Inventory					Finished Goods Inventory
Bal. 8/31	8000				Bal. 8/31	35000
Direct material	40000				7	150250	182000	g.
Direct labor	80200
Overhead	60150
		150250	7
Bal. 9/30	38100				Bal. 9/30	3250
Manufacturing Overhead					Cost of Goods Sold
j.	60000	60150			g.	182000
Wages Payable					Sales Revenue
Bal. 8/31		1000					218400	1
i.	79500	80200
Bal. 9/30		1700
Accounts Receivable
Bal. 8/31	8000
1	218400	205000	a.
Bal. 9/30	21400