Question

1. Show posted T-accounts for all inventories, Cost of Goods Sold, Manufacturing Overhead Control, and Manufacturing Overhead Allocated.

2. . How did the SRS Educational Press perform in 2017? Should the company continue to have in-house press production?

SRS COST DATA Direct materials and supplies purchased on credit: $800 Direct materials used: $710 Indirect materials issued to various production departments: $100 Direct manufacturing labor: $1,300 Indirect manufacturing labor incurred by various production departments: $900 Depreciation on building and manufacturing equipment: $400 Miscellaneous manufacturing overhead incurred by various production departments: $550 o (Ordinarily, this would be detailed as repairs, photocopying, utilities, etc.) Manufacturing overhead allocated at 160% of direct manufacturing labor costs: ? Cost of goods manufactured: $4,120 Revenues: $8.000 Cost of goods sold (before adjustment for under- or overallocated manufacturing overhead): $4,020 Inventories. December 31, 2016 (not 2017): o Materials control: $100 o Work-in-process control: 560 o Finished goods control: $500

Answer 1

1) Firstly we need to show journal entries for the given transactions which is shown as follows:-

Journal Entries (Amounts in $)

No.	Account Titles	Debit	Credit
a)	Materials Control	800
	Accounts Payable Control		800
	(To record the materials and supplies purchased)
b)	Work-in-Process Control	710
	Materials Control		710
	(To record the direct materials used)
c)	Manufacturing Overhead Control	100
	Materials Control		100
	(To record the issue of indirect materials)
d)	Work-in-Process Control	1,300
	Manufacturing Overhead Control	900
	Wages Payable Control		2,200
	(To record the direct labor and indirect labor)
e)	Manufacturing Overhead Control	400
	Accumulated Depreciation-Building and Manufacturing Equipment		400
	(To record the depreciation expense)
f)	Manufacturing Overhead Control	550
	Miscellaneous Accounts		550
	(To record the miscellaneous overheads)
g)	Work-in-Process Control	2,080
	Manufacturing Overhead Allocated (1,300*160%)		2,080
	(To record the overhead allocated)
h)	Finished Goods Control	4,120
	Work-in-Process Control		4,120
	(To record the cost of goods manufactured)
i)	Accounts Receivable	8,000
	Revenues		8,000
	(To record the revenues)
j)	Cost of goods sold	4,020
	Finished Goods Control		4,020
	(To record the cost of goods sold)
k)	Manufacturing Overhead Allocated	2,080
	Manufacturing Overhead Control (Total balance) (100+900+400+550)		1,950
	Cost of goods sold (2,080-1,950) (bal fig)		130
	(To record the over allocated manufacturing overhead)

T Accounts based on the above journal entries are shown as follows:-

Materials Control (Amounts in $)

Beg. Balance	100	Work-in-Process Control (b)	710
Accounts Payable Control (a)	800	Manufacturing Overhead Control (c)	100
	900		810
Ending Balance (900-810)	90

Work-in-Process Control (Amounts in $)

Beg. Balance	60	Finished Goods Control (h)	4,120
Materials Control (b)	710
Wages Payable Control (d)	1,300
Manufacturing Overhead Allocated (g)	2,080
	4,150		4,120
Ending Balance (4,150-4,120)	30

Manufacturing Overhead Control (Amounts in $)

Materials Control (c)	100	Manufacturing Overhead Allocated (k)	1,950
Wages Payable Control (d)	900
Accumulated Depreciation-Building and manufacturing equipment (e)	400
Miscellaneous Accounts (f)	550
	1,950		1,950

Manufacturing Overhead Allocated (Amounts in $)

Manufacturing Overhead Control (k)	1,950	Work-in-Process Control (g)	2,080
Cost of goods sold (k)	130
	2,080		2,080

Finished Goods Control (Amounts in $)

Beginning Balance	500	Cost of goods sold (j)	4,020
Work-in-Process Control (h)	4,120
	4,620		4,020
Ending Balance (4,620-4,020)	600

Cost of goods sold (Amounts in $)

Finished Goods Control (j)	4,020	Manufacturing Overhead Allocated (k)	130
	4,020		130
Ending Balance (12/31/17)	3,890

2) For evaluating performance of SRS in 2017, we need to calculate the gross margin ratio which is shown as follows:-

Gross Margin = Revenues - Cost of goods sold

= $8,000 - $3,890 = $4,110

Gross Margin Ratio = (Gross Margin/Revenues)*100

= (4,110/$8,000)*100 = 51.375%

The gross margin ratio of 51.375% indicates that SRS Educational Press performed very well in 2017. Therefore it should continue to have in-house press production.