Chapter 10, Problem 10.4.2P

Analyzing manufacturing cost accounts
Summer Boards Company manufactures surf boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for May:

In addition, the following information is available:

1. Materials and direct labor were applied to six jobs in May:

b.Factory overhead is applied to each job at a rate of 120% of direct labor cost.
c.The May 1 Work in Process balance consisted of two jobs, as follows:

d. Customer jobs completed and units sold in May were as follows:

Instructions

Determine the May 31 balances for each of the inventory accounts and factory overhead.

To determine

Concept introduction:

Direct Cost:

The cost which is directly related to the product and affects those items directly which contribute to the revenue generation in the business is referred as direct cost.It makes a direct relation to the manufacturing cost.

Indirect Cost:

The cost which is not directly related to the product and does not affect those items directly which contribute to the revenue generation in the business is referred as indirect cost. These can be fixed costs or such costs that are incurred as a whole and cannot be related to manufacturing cost.

The balances at $\text{May31}$ for each inventory accounts and factory overhead.

Answer to Problem 10.4.2P

The closing balances on $\text{May 31}$ for material account is $\$16,900$, for work in process account is $\$38,500$, and for finished goods account is $\$39,190$.

Explanation of Solution

The balance of material accounton $\text{May 31}$ is as follows:

Date	Particulars	Amount   $\left(\$\right)$	Date	Particulars	Amount   $\left(\$\right)$
$\text{May1}$	Opening balance	$9,000$	$\text{May31}$	Requisitions	$32,100$
$\text{May31}$	Purchases	$40,000$
			$\text{May31}$	Closing balance	$16,900$
	Total	$49,000$		Total	$49,000$

The balance of work in process accounton $\text{May 31}$ is as follows:

Date	Particulars	Amount   $\left(\$\right)$	Date	Particulars	Amount   $\left(\$\right)$
$\text{May1}$	Opening balance	$5,500$	$\text{May31}$	Finished goods	$39,190$
$\text{May31}$	Direct material	$5,500$
$\text{May31}$	Direct Labor	$12,500$
$\text{May31}$	Factory overhead	$15,000$	$\text{May31}$	Closing balance	$38,500$
$\text{May31}$	Completed jobs	$39,190$
	Total	$77,690$		Total	$77,690$

The balance of finished goods accounton $\text{May 31}$ is as follows:

Date	Particulars	Amount   $\left(\$\right)$	Date	Particulars	Amount   $\left(\$\right)$
$\text{May1}$	Opening balance	$-$	$\text{May31}$	Cost of goods sold	$176,610$
$\text{May31}$	Total cost of finished goods	$176,610$	$\text{May31}$	Closing balance	$39,190$
$\text{May31}$	Work in process	$39,190$
	Total	$215,800$		Total	$215,800$

The balance of factory overhead accounton $\text{May 31}$ is as follows:

Date	Particulars	Amount   $\left(\$\right)$	Date	Particulars	Amount   $\left(\$\right)$
			$\text{May1}$	Opening balance	$3,000$
$\text{May31}$	Wages payable	$14,000$	$\text{May31}$	Factory overhead applied	$115,200$
$\text{May31}$	Indirect material	$2,500$	$\text{May31}$	Overhead under applied transfer to COGS	$1,200$
$\text{May31}$	Other overhead	$102,900$
	Total	$119,400$		Total	$119,400$