Chapter 16, Problem 3BP

a.

To determine

Ascertain the purchase cost of direct materials during the current year.

Explanation of Solution

Direct material: Direct material cost is the cost of material that is directly involved in the production.

Ascertain the purchase cost of direct materials during the current year as follows:

Purchase of direct materials is debited to the materials inventory account, and at the time of production, the direct material costs are transferred from the material inventory account to the work in process inventory account.

Therefore, the purchase cost of direct materials during the current year (refer debit side of material inventory account) is $260,000.

b.

To determine

Ascertain the cost of direct material used during the year.

Explanation of Solution

Ascertain the cost of direct material used during the year as follows:

Particulars	$
Materials inventory, beginning of year	10,000
Add: Purchases of direct materials	260,000
Cost of materials available for use	270,000
Less: Materials inventory, end of year	15,000
Cost of direct materials used	255,000

Table (1)

Therefore, the cost of direct material used during the year is $255,000.

c.

To determine

Ascertain the direct labor costs assigned to production during the year.

Explanation of Solution

Direct labor: Direct labor cost is the cost of the labor that is paid to the employees who are directly involved in the process of converting the raw material into the finished goods.

Ascertain the direct labor costs assigned to production during the year as follows:

When labors are directly involved in the production process, the direct labor costs are transferred from the direct labor account to the work in process inventory account.

Therefore, the direct labor costs assigned to production during the year (refer credit side of direct labor account) is $140,000.

d.

To determine

Ascertain the year-end liability for direct wages payable.

Explanation of Solution

Ascertain the year-end liability for direct wages payable as follows:

$\begin{array}{c}\begin{array}{l}\text{Year-end liability }\\ \text{for direct wages payable}\end{array}\}=\left[\begin{array}{l}\text{Direct labor costs assigned to production}-\\ \text{Beginning cost of direct labor}\end{array}\right]\\ =\$140,000-\$139,000\\ =\$1,000\end{array}$

Therefore, the year-end liability for direct wages payable is $1,000.

e.

To determine

Ascertain the overhead as a percentage of direct labor costs.

Explanation of Solution

Ascertain the overhead as a percentage of direct labor costs as follows:

$\begin{array}{c}\begin{array}{l}\text{Overhead as a percentage }\\ \text{of direct labor costs}\end{array}\}=\frac{\text{Overhead assigned during the year }}{\text{Direct labor costs assigned to production}}\times 100\\ =\frac{\$210,000}{\$140,000}\times 100\\ =150\%\end{array}$

Therefore, the overhead as a percentage of direct labor costs is 150%.

f.

To determine

Ascertain the total manufacturing costs charged to the work in process inventory account during the current year.

Explanation of Solution

Ascertain the total manufacturing costs charged to the work in process inventory account during the current year as follows:

Particulars	$
Direct materials used (refer part b)	255,000
Add: Direct labor costs (refer part c)	140,000
Add: Manufacturing overhead	210,000
Total manufacturing costs	605,000

Table (2)

Therefore, the total manufacturing costs charged to the work in process inventory account during the current year is $605,000.

g.

To determine

Ascertain the cost of finished goods manufactured during the year.

Explanation of Solution

Finished goods: Finished goods are completed goods (product) but that are yet to be sold in the market (available for sales).

Ascertain the cost of finished goods manufactured during the year as follows:

Direct material, direct labor, and manufacturing overhead are the integral parts of finished goods, and these costs are directly transferred to the finished goods to ascertain the unit cost of finished goods.

Therefore, the cost of finished goods manufactured during the year (refer debit side of finished goods inventory account) is $608,000.

h.

To determine

Ascertain the year-end balance in the work in process inventory account.

Explanation of Solution

Particulars	$
Work in process inventory, beginning of year	20,000
Add: Total manufacturing costs (refer part e)	605,000
Cost of all goods in process during the year	625,000
Less: Cost of finished goods manufactured	608,000
Work in process inventory, end of year	17,000

Table (3)

Therefore, the year-end balance in the work in process inventory account is $17,000.

i.

To determine

Ascertain the cost of goods sold during the year.

Explanation of Solution

Ascertain the cost of goods sold of Company I as follows:

Particulars	$
Beginning inventory of finished goods	45,000
Add: Cost of finished goods manufactured	608,000
Cost of goods available for sale	653,000
Less: Ending inventory of finished goods	50,000
Cost of goods sold	603,000

Table (4)

Therefore, the cost of goods sold during the year is $603,000.

j.

To determine

Ascertain the total amount of inventory listed in the year-end balance sheet of Company I.

Explanation of Solution

Ascertain the total amount of inventory listed in the year-end balance sheet of Company I as follows:

Particulars	$
Materials	15,000
Work in process (refer part g)	17,000
Finished goods	50,00
Total inventory	82,000

Table (5)

Therefore, the total amount of inventory listed in the year-end balance sheet of Company I is $82,000.