Question

Bowen Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. Its predetermined overhead rate includes $1,000,000 of fixed overhead in the numerator and 50,000 direct labor-hours in the denominator. The company purchased (with cash) and used 55,000 yards of raw materials at a cost of $11.50 per yard. Its direct laborers worked 20,850 hours and were paid a total of $291,700. The company started and completed 9,800 units of finished goods during the period. Bowen's standard cost card for its only product is as follows: (1) Standard (2) Standard Standard Quantity or Price Cost Inputs Direct materials Hours or Rate (1) x (2) $ 86.95 $18.50 per yard $14.00 per hour $20.00 per hour 4.7 yards 4.1 hours Direct labor 57.40 Fixed manufacturing overhead 4.1 hours 82.00 $226.35 Total standard cost per unit Required: 1. When recording the raw material purchases: a. The Raw Materials inventory will increase (decrease) by how much? b. The Cash will increase (decrease) by how much? 2. When recording the raw materials used in production: a. The Raw Materials inventory will increase (decrease) by how much? b. The Work in Process inventory will increase (decrease) by how much? 3. When recording the direct labor costs added to production: a. The Work in Process inventory will increase (decrease) by how much? b. The Cash will increase (decrease) by how much? 4. When applying fixed manufacturing overhead to production, the Work in Process inventory will increase (decrease) by how much? 5. When transferring manufacturing costs from Work in Process to Finished Goods, the Finished Goods inventory will increase (decrease) by how much?

Answer 1

SOLUTION

1A. Raw Materials inventory will increase by $1,017,500 (being the standard cost of 55,000*$18.50).

1B. Cash will decrease by $632,500 (being the actual cost paid for 55,000 * $11.50)

2A. Raw Materials inventory will decrease by $1,017,500 (being the standard cost of 55,000*$18.50).

2B. Work in Process inventory will increase by $852,110 (being the standard cost of 9,800 units at 4.7 yard per unit - 46,060 * $18.50)

3A. Work in Process inventory will increase by $562,520 (being the standard cost of 9,800 units at 4.1 hours per unit - 40,180 * $14)

3B. Cash will decrease by $291,700 (being the actual cost of 20,850 hours for $291,700)

4. Work in Process inventory will increase by $417,000

Predetermined overhead rate = Budgeted overhead / Budgeted labor hours

= $1,000,000 / 50,000 = $20 per labor hour

Overhead applied = Actual labor hours * Predetermined overhead rate

= 20,850 * 20 = 417,000

5. Finished Goods inventory will increase by $2,218,230 (being units transferred * standard costing per unit = 9,800 * $226.35).