Chapter 3, Problem 59P

To determine

Calculate the missing amounts and prepare the T-accounts.

Explanation of Solution

1. 1. Calculate the sales revenue for November.

$\begin{array}{c}\text{Sales revenue}=\text{Cost of goods sold}\times \text{120\%}\\ =\$180,000\times 120\%\\ =\$216,000\end{array}$

Thus, the sales revenue for November is $216,000.

1. 2. Calculate the ending balance of accounts receivable.

$\begin{array}{c}\text{Ending balance in accounts receivable}=\text{Beginning balance}+\text{Sales revenue}-\text{Collections}\\ =\$8,000+\$216,000-\$205,000\\ =\$19,000\end{array}$

Thus, the ending balance in accounts receivable is $19,000.

1. 3. Calculate the cost of raw materials purchased during November.

$\begin{array}{c}\text{Purchase of raw materials}=\text{Addition of accounts payable}\left(\begin{array}{l}\text{Ending balance}+\\ \text{Payments}-\text{Beginning balance}\end{array}\right)\\ =\$1,000+\$81,000-\$12,000\\ =\$70,000\end{array}$

Thus, the cost of raw materials purchased during November is $70,000.

1. 4. Calculate the ending balance in the work-in-process inventory.

Step 1: Calculate the budgeted direct-labor hours.

$\begin{array}{c}\text{Budgeted direct-labor hours}=\frac{\text{Budgeted direct-labor cost}}{\text{Direct-labor rate}}\\ =\frac{\$960,000}{\$20}\\ =\$48,000\end{array}$

Step 2: Calculate the predetermined overhead rate.

$\begin{array}{c}\text{Predetermined overhead rate}=\frac{\text{Budgeted overhead}}{\text{Budgeted direct-labor hours}}\\ =\frac{\$720,000}{\text{48,000}}\\ =\$15\text{Per direct-labor hours}\end{array}$

Step 3: Calculate the ending balance in the work-in-process inventory.

$\begin{array}{c}\left\{\begin{array}{l}\text{Ending balance in the }\\ \text{work-in-process inventory}\end{array}\right\}=\left(\begin{array}{l}\text{Direct materials}+\text{Direct labor}+\\ \text{Manufacturing overhead}\end{array}\right)\\ =\left[\left(\$20,500\right)+\left(500\right)\left(\$20\right)+\left(500\right)\left(\$15\right)\right]\\ =\$20,500+\$10,000+\$7,500\\ =\$38,000\end{array}$

Thus, the ending balance in the work-in-process inventory is $38,000.

1. 5. Calculate the amount of direct labor added to work in process during November.

$\begin{array}{c}\text{Addition to work in prcoess for direct labor}=\text{November credit to }\\ \text{wages payable}\left(\begin{array}{l}\text{Ending balance}+\text{Payments}-\\ \text{Beginning balance}\end{array}\right)\\ =\$1,500+\$79,500-\$1,000\\ =\$80,000\end{array}$

Thus, the amount of direct labor added to work in process during November is $80,000.

1. 6. Calculate the amount of applied overhead for November.

Step 1: Calculate the direct-labor hours.

$\begin{array}{c}\text{Direct-labor hours}=\frac{\text{Addition to work in process for direct labor}}{\text{Direct labor rate}}\\ =\frac{\$80,000}{\$20}\\ =4,000\text{ hours}\end{array}$

Step 2: Calculate the amount of applied overhead for November.

$\begin{array}{c}\text{Applied overhead for November}=\text{Direct labor hours}\times \text{Predetermined overhead rate}\\ =4,000\times \$15\\ =\$60,000\end{array}$

Thus, the applied overhead for November is $60,000.

1. 7. Calculate the cost of goods completed during November.

$\begin{array}{c}\text{Cost of goods completed during November}=\left(\begin{array}{l}\text{Beginning balance in work in process}+\\ \text{Additions during november}-\\ \text{Ending balance in work in process}\end{array}\right)\\ =\$8,000+\left(\$40,000+\$80,000+\$60,000\right)-\$38,000\\ =\$150,000\end{array}$

Thus, the cost of goods completed during November is $150,000.

1. 8. Calculate the amount of raw materials used during November.

$\begin{array}{c}\text{Raw materials used in November}=\text{November credit to raw material inventory}\\ =\$40,000\left(\text{Given}\right)\end{array}$

Thus, the amount of raw materials used during November is $40,000.

1. 9. Calculate the amount of October 31 balance in raw-material inventory.

$\begin{array}{c}\text{October 31 balance in raw-material inventory}=\left(\begin{array}{l}\text{November 30 balance in }\\ \text{raw material inventory}+\\ \text{Direct material used}-\text{Purchases}\end{array}\right)\\ =\left(\$45,000+\$40,000-\$70,000\right)\\ =\$15,000\end{array}$

Thus, the amount of October 31 balances in raw-material inventory is $15,000.

1. 10. Calculate the amount of overapplied or underapplied for November.

$\begin{array}{c}\text{Overapplied or underapplied overhead}=\left(\text{Actual overhead}-\text{Applied overhead}\right)\\ =\left(\$60,000-\$60,000\right)\\ \$0\end{array}$

Thus, there is no underapplied or overapplied overhead for the month November.

Prepare the T-accounts.