Question

Evelyn Perez started Perez Manufacturing Company to make a universal television remote control device that she had invented. The company’s labor force consisted of part-time employees. The following accounting events affected Perez Manufacturing Company during its first year of operation. (Assume that all transactions are cash transactions unless otherwise stated.)

Transactions for January Year 1,

1. First Month of Operation Issued common stock for $9,500.

2. Purchased $405 of direct raw materials and $60 of production supplies.

3. Used $238 of direct raw materials.

4. Used 80 direct labor hours; production workers were paid $9.70 per hour.

5. Expected total overhead costs for the year to be $3,200, and direct labor hours used during the year to be 1,000. Calculate an overhead rate and apply the appropriate amount of overhead costs to Work in Process Inventory.

6. Paid $142 for salaries to administrative and sales staff.

7. Paid $25 for indirect manufacturing labor.

8. Paid $205 for rent and utilities on the manufacturing facilities.

9. Started and completed 100 remote controls during the month; all costs were transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

10. Sold 80 remote controls at a price of $21.60 each.

Transactions for Remainder of Year 1

11. Acquired an additional $18,000 by issuing common stock.

12. Purchased $3,940 of direct raw materials and $910 of production supplies.

13. Used $3,020 of direct raw materials.

14. Paid production workers $9.70 per hour for 900 hours of work.

15. Applied the appropriate overhead cost to Work in Process Inventory.

16. Paid $1,557 for salaries of administrative and sales staff.

17. Paid $244 of indirect manufacturing labor cost.

18. Paid $2,410 for rental and utility costs on the manufacturing facilities.

19. Transferred 900 additional remote controls that cost $12.70 each from the Work in Process Inventory account to the Finished Goods Inventory account.

20. Determined that $165 of production supplies was on hand at the end of the accounting period.

21. Sold 850 remote controls for $21.60 each.

22. Determine whether the overhead is over- or underapplied. Close the Manufacturing Overhead account to the Cost of Goods Sold account.

23. Close the revenue and expense accounts.

Required For each of the above transactions, a) post the effects to the appropriate T-accounts. b) Prepare a schedule of cost of goods manufactured and sold, c) an income statement, and d) a balance sheet for Year 1.

Answer 1

a.

Cash
1.	9,500	2.	465
10.	1,728	4.	776
11.	18,000	6.	142
21.	18,360	7.	25
		8.	205
		12.	4,850
		14.	8,730
		16.	1,557
		17.	244
		18.	2,410
Bal.	28,184
Raw Materials Inventory
2	405	3.	238
12.	3,940	13.	3,020
Bal.	1,087
Production Supplies
2	60	MOH	805
12.	910
20	165
Work in Process Inventory
3.	238	9.	1,270
4.	776	19.	11,430
5.	256
13.	3,020
14.	8,730
15.	2,880
Bal.	3,200
Finished Goods Inventory
9.	1,270	10.	1,016
19.	11,430	21.	10,795
Bal.	889
Manufacturing Overhead
7.	25	5.	256
8.	205	15.	2,880
17.	244
18.	2,410
20.	805
		22.	553
Common Stock
		1.	9,500
		11.	18,000
		Bal.	27,500
Sales
		10.	1,728
		21.	18,360
23.	20,088
Cost of Goods Sold
10.	1,016
21.	10,795
22.	553
		23.	12,364
Salaries Expense
6.	142
16.	1,557
		23.	1,699
Retained Earnings
23.	12,364	23.	20,088
23.	1,699
		Bal.	6,025

b.

Schedule of Cost of Goods Manufactured and Sold
Beginning work in process inventory		$ 0
Direct materials used
Beginning direct materials inventory	0
Add: Purchases	4,345
Direct materials available for use	4,345
Less: Ending inventory	(1,087)	3,258
Direct labor		9,506
Applied overhead		3,136
Total Manufacturing Costs		15,900
Total Cost of Work in Process		15,900
Less: Ending work in process inventory		3,200
Cost of Goods Manufactured		12,700
Add: Beginning finished goods inventory		0
Cost of goods available for sale		12,700
Less: Ending finished goods inventory		889
Cost of goods sold ( unadjusted )		11,811
Add: Underapplied overhead		553
Adjusted Cost of Goods Sold		12,364

c.

Income Statement Year 1
Sales ( 1,728 + 18,360)	$ 20,088
Cost of Goods Sold	12,364
Gross Profit	7,724
Operating Expenses
Salaries Expense	1,699
Net Operating Income	$ 6,025

d.

Balance Sheet December 31, Year 1
Assets
Cash	28,184
Raw Materials Inventory	1,087
Work in Process Inventory	3,200
Finished Goods Inventory	889
Production Supplies	165
Total Assets	$ 33,525
Liabilities and Stockholders Equity
Liabilities	0
Common Stock	$ 27,500
Retained Earnings	6,025
Total Liabilities and Stockholders Equity	$ 33,525