Li Company produces large quantities of a standardized product. The following information is available for its production activities for January.
Raw materials | Factory overhead incurred | ||
Beginning inventory | $ 26,000 | Indirect materials used | $ 81,500 |
Raw materials purchased (on credit) | 2,55,000 | Indirect labor used | 50,000 |
Direct materials used | (172,000) | Other overhead costs | 159,308 |
Indirect materials used | (81,500) | Total factory overhead incurred | $290,808 |
Ending inventory | $ 27,500 | ||
| |||
Factory payroll |
| Factory overhead applied (140% of direct labor cost) | |
Direct labor used | $207,720 | Total factory overhead applied | $290,808 |
Indirect labor used | 50,000 | ||
Total payroll cost (paid in cash) | $257,720 |
Additional information about units and costs of production activities follows.
Units | Costs | ||
Beginning goods in process inventory | 2,200 | Beginning goods in process inventory | |
Started | 30,000 | Direct materials | $3,500 |
Ending goods in process inventory | 5,900 | Direct labor | 3,225 |
Factory overhead | 4,515 | $ 11,240 | |
Status of ending goods in process inventory | Direct materials added | 172,000 | |
Materials—Percent complete | 50% | Direct labor added | 207,720 |
Labor and overhead—Percent complete | 65% | Overhead applied (140% of direct labor) | 290,808 |
Total costs | $681,768 | ||
Ending goods in process inventory | $ 82,128 |
During January, 55,000 units of finished goods are sold for $50 cash each. Cost information regarding finished goods follows.
Beginning finished goods inventory | $155,000 |
Cost transferred in | 599,640 |
Cost of goods sold | (612,500) |
Ending finished goods inventory | $142,140 |
Required
1. Prepare journal entries dated January 31 to record the following January activities: (a) purchase of raw materials, (b) direct materials usage, (c) indirect materials usage, (d) factory payroll costs, (e) direct labor costs used in production, (f) indirect labor costs, (g) other overhead costs—credit Other Accounts, (h) overhead applied, (i) goods transferred to finished goods, and ( j) sale of finished goods.
2. Prepare a process cost summary report for this company, showing costs charged to production, units cost information, equivalent units of production, cost per EUP, and its cost assignment and reconciliation.
Analysis Component
3. The company provides incentives to its department managers by paying monthly bonuses based on their success in controlling costs per equivalent unit of production. Assume that the production department underestimates the percentage of completion for units in ending inventory with the result that its equivalent units of production in ending inventory for January are understated. What impact does this error have on the January bonuses paid to the production managers? What impact, if any, does this error have on February bonuses?
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