Question

Boron Chemical Company produces a synthetic resin that is used in the automotive industry. The company uses a standard cost system. For each gallon of output, the following direct manufacturing costs are anticipated: Direct labor: 3.20 hours at $27.00 per hour Direct materials: 3.20 gallons at $22.00 per gallon $86.40 $70.40 During December of the current year, Boron produced a total of 2,620 gallons of output and incurred the following direct manufacturing costs: Direct labor: 8,250 hours worked at an average wage rate of $20.70 per hour Direct materials: Purchased: 9,200 gallons @ $22.45 per gallon Used in production: 8,500 gallons Boron records price variances for materials at the time of purchase. Required: Prepare journal entries for the following events and transactions. 1. Purchase, on credit, of direct materials. 2. Direct materials issued to production 3. Direct labor cost of units completed this period. 4. Direct manufacturing cost (direct labor plus direct materials) of units completed and transferred to Finished Goods Inventory. 5. Sale (on credit), for $270 per gallon, of 2,400 gallons of output. (Hint: You will need two journal entries here.) (For all requirements, if no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amount.)

Answer 1

Journal Entries:

Transaction	General Journal	Debit	Credit
1)	Merchandise Inventory (9,200 gallons * $22.45 per gallon)	$206,540
	Accounts Payable		$206,540
	(To record purchase of merchandise inventory on account)
2)	Work-in Process Inventory	$190,825
	Merchandise Inventory (8,500 gallons * $22.45 per gallon)		$190,825
	(To record the issue of direct materials to the production)
3)	Work-in Process Inventory	$170,775
	Direct Labor (8,250 hours * $20.70 per hour)		$170,775
	(To record the direct labor costs to the production)
4)	Finished Goods Inventory	$361,600
	Work-in Process Inventory ($190,825 + $170,775)		$361,600
	(To record the transfer of production costs to finished goods)
5-a)	Accounts Receivable	$648,000
	Sales Revenue (2,400 gallons * $270 per gallon)		$648,000
	(To record the sale on account)
5-b)	Cost of Goods Sold	$53,880
	Finished Goods Inventory (2,400 gallons * $22.45 per gallon)		$53,880
	(To record cost of goods sold)