Question

Major League Bat Company manufactures baseball bats. In addition to its work in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials. Its factory payroll costs include direct labor for production and indirect labor. All materials are added at the beginning of the process, and conversion costs are applied uniformly throughout the production process.

Required:
You are to maintain records and produce measures of inventories to reflect the July events of this company. The June 30 balances: Raw Materials Inventory, $29,000; Work in Process Inventory, $7,835 ($3,160 of direct materials and $4,675 of conversion); Finished Goods Inventory, $100,000; Sales, $0; Cost of Goods Sold, $0; Factory Wages Payable, $0; and Factory Overhead, $0.

1. Prepare journal entries to record the following July transactions and events.

1. Purchased raw materials for $165,000 cash (the company uses a perpetual inventory system).
2. Used raw materials as follows: direct materials, $58,040; and indirect materials, $15,000.
3. Recorded factory wages payable costs as follows: direct labor, $214,750; and indirect labor, $30,000.
4. Paid factory payroll cost of $244,750 with cash (ignore taxes).
5. Incurred additional factory overhead costs of $90,000 paid in cash.
6. Applied factory overhead to production at 50% of direct labor costs.

2. Information about the July inventories follows. Use this information with that from part 1 to prepare a process cost summary, assuming the weighted-average method is used. (Round "Cost per EUP" to 2 decimal places.)

Units
Beginning inventory	8,000	units
Started	10,000	units
Ending inventory	4,000	units
Beginning inventory
Materials—Percent complete	100	%
Conversion—Percent complete	70	%
Ending inventory
Materials—Percent complete	100	%
Conversion—Percent complete	30	%

3. Using the results from part 2 and the available information, make computations and prepare journal entries to record the following:

7. Total costs transferred to finished goods for July.
8. Sale of finished goods costing $290,700 for $675,000 in cash.

4. Post entries from parts 1 and 3 to the following general ledger accounts.
5. Compute the amount of gross profit from the sales in July. (Hint: Add any underapplied overhead to, or deduct any overapplied overhead from, the cost of goods sold.)

Answer 1

Answer-1:

No.	Account Title	Debit	Credit
1	Raw material inventory	$ 165,000
	Cash		$ 165,000
2	Work in process inventory	58,040
	Factory overhead	15,000
	Raw material inventory		73,040
3	Work in process inventory	214,750
	Factory overhead	30,000
	Factory wages payable		244,750
4	Factory wages payable	244,750
	Cash		244,750
5	Factory overhead	90,000
	Cash		90,000
6	Work in process inventory	107,375
	Factory overhead (214,750 × 50%)		107,375

Answer-3:

	Account Title	Debit	Credit
1	Finished goods inventory	348,600
	Work in process inventory		348,600
2	Account receivable	675,000
	Sales		675,000
2	Cost of goods sold	290,700
	Finished goods inventory		290,700

Working:

Equivalents Units of Production (EUP)
	Units	% Materials	EUP-material	% conversion	EUP-conversion
Started and completed	14,000	100%	14,000	100%	14,000
Units in ending WIP	4,000	100%	4,000	30%	1,200
Total Equivalent units	18,000		18,000		15,200
Cost per equivalent units of production:	Direct materials	Conversion
cost of Beginning WIP	3,160	4,675
Cost added during the month	58,040	322,125
Total cost to be accounted for	61,200	326,800
Total Equivalent units	18,000	15,200
Cost per equivalent units of production	$                  3.40	$              21.50
Conversion cost = Direct labor + Overhead applied
Conversion cost = 214750 + 107,375 = 322,125
	Material	Conversion	Total
Cost of units transferred out	$              47,600	$         301,000	$        348,600
Cost of ending work in process inventory	$              13,600	$            25,800	$           39,400

Answer-4 & 5:

Factory Overhead
15,000	107,375
30,000
90,000
27,625

There is debit balance in factory overhead account, which means overhead has been under-applied for $27,625

Account Title	Debit	Credit
Cost of goods sold	27,625
Factory overhead		27,625