Chapter 4, Problem 20P

Chrome Solutions Company manufactures special chromed parts made to the order and specifications of the customer. It has two production departments, Stamping and Plating, and two service departments, Power and Maintenance. In any production department, the job in process is wholly completed before the next job is started.

The company operates on a fiscal year, which ends September 30. Following is the post-closing trial balance as of September 30:

Additional information:

1. The balance of the materials account represents the following:

The company uses the FIFO method of accounting for all inventories. Material A is used in the Stamping Department, and materials B and C are used in the Plating Department.

2. The balance of the work in process account represents the following costs that are applicable to Job 905. (The customer’s order is for 1,000 units of the finished product.)

3. The finished goods account reflects the cost of Job 803, which was finished at the end of the preceding month and is awaiting delivery orders from the customer.

4. At the beginning of the year, factory overhead application rates were based on the following data:

In October, the following transactions were recorded:

a. Purchased the following materials and supplies on account:

b. The following materials were issued to the factory:

Customers’ orders covered by Jobs 1001 and 1002 are for 1,000 and 500 units of finished product, respectively.

c. Factory wages and office, sales, and administrative salaries are paid at the end of each month. (Assume FICA and federal income tax rates of 8% and 10%, respectively.) Record the company’s liability for state and federal unemployment taxes. (Assume rates of 4% and 1%, respectively, and that none of the employees had reached the $8,000 limit.) Record the payroll distribution for October.

Wages of the supervisors, custodial personnel, etc., totaled $9,500; administrative salaries were $18,300.

d. Miscellaneous factory overhead incurred during October totaled $4,230. Miscellaneous selling and administrative expenses were $1,500. These items as well as the FICA tax and federal income tax withheld for September were paid. (See account balances on the post-closing trial balance for September 30.)

e. Annual depreciation on plant assets is calculated using the following rates (round to nearest dollar):

Factory buildings–5%

Machinery and equipment–20%

Office equipment–20%

f. The balance of the prepaid insurance account represents a three-year premium for a fire insurance policy covering the factory building and machinery. It was paid on the last day of the preceding month and became effective on October 1.

g. The summary of factory overhead prepared from the factory overhead ledger is reproduced here:

h. The total expenses of the Maintenance Department are distributed on the basis of floor space occupied by the Power Department (8,820 sq ft), Stamping Department (19,500 sq ft), and Plating Department (7,875 sq ft). The power department expenses are then allocated equally to the Stamping and Plating departments.

i. After the actual factory overhead expenses have been distributed to the departmental accounts and the applied factory overhead has been recorded and posted, any balances in the departmental accounts are transferred to Under- and Overapplied Overhead.

j. Jobs 905 and 1001 were finished during the month. Job 1002 is still in process at the end of the month.

k. During the month, Jobs 803 and 905 were sold with a mark-on percentage of 50% on cost.

l. Received $55,500 from customers in payment of their accounts.

m. Checks were issued in the amount of $43,706 for payment of the payroll.

Required

1. 1. Set up the beginning trial balance in T-accounts.
2. 2. Prepare materials inventory ledger cards and enter October 1 balances.
3. 3. Prepare a Payroll Summary and Schedule of Earnings and Payroll Taxes for the month of October.
4. 4. Set up job cost sheets as needed.
5. 5. Record all transactions and related entries for October and post to T-accounts.
6. 6. Prepare a service department expense distribution worksheet for October.
7. 7. At the end of the month:
   1. a. Analyze the balance in the materials account, the work in process account, and the finished goods account.
   2. b. Prepare the statement of cost of goods manufactured for the month ended October 31.

To determine

Prepare T-accounts for company C.

Explanation of Solution

Prepare T-accounts for company C:

	Cash
October.1			22,500	October.31	d.	14,050
31		l.	55,500		m.	43,706
Total			78,000			57,756
			20,244

	Accounts receivable
October.1			21,700	October.31	l.	55,500
31		k.	43,140
Total			64,840
			9,340

	Finished Goods
October.1			8,750	October.31	k.	28,760
31		j.	78,700
Total			87,450
			58,690

	Work in Process
October.1			3,600	October.31	j.	78,700
31		b.	52,600
		c.	25,500
		i.	22,000
Total			103,700
			25,000
	Materials
October.1			15,000	October.31	b.	55,050
31		a.	69,500
Total			84,500
			29,450

	Prepaid Insurance
October.1			4,320	October.31	f.	120
Total			4,320
			4,200

	Factory Building
October.1			64,000

	Accumulated Depreciation—Factory Building
				October.1		22,500
				31	e.	267
						22,767

	Machinery & Equipment
October.1			38,000

	Accumulated Depreciation—Factory Building
				October.1		16,000
				31	e.	633
						16,633

	Office Equipment
October.1			10,500

	Accumulated Depreciation—Office Equipment
				October.1		7,500
				31		175
						7,675

	Accounts Payable
				October.1		2,500
				31	a.	69,500
						72,000

	FICA Tax Payable
October.31		d.	3,120	October.1		3,120
					c.	4,264
				31	c.	4,264
						11,648
						8,528

	Federal Unemployment Tax Payable
				October.1		364
				31	c.	533
						897

	State Unemployment Tax Payable
				October.1		1,404
				31	c.	2,132
						3,536

	Employees Income Tax Payable
October.31		d.	5,200	October.1		5,200
				31	c.	5,330
						10,530
						5,330

	Wages Payable
October.31		m.	43,706	October.31		43,706

	Wages Payable
October.31		m.	43,706	October.31		43,706

	Capital Stock
				October.1		75,000

	Retained Earnings
				October.1		54,782

	Factory Overhead
October.31		b.	2,450	October.31	g.	21,750
		c.	9,500
		c.	4,550
		d.	4,230
		e.	900
		f.	120
			21,750			21,750

	Factory Overhead—Stamping
October.31		g.	9,768.40	October.31	i.	10,500
		h.	1,728.15		i.	2,494.42
		h.	1,497.87
			12,994.42			12,994.42

	Factory Overhead—Plating
October.31		g.	6,559.80	October.31	i.	11,500
		h.	697.90
		h.	1,497.88
		i.	2,744.42
			11,500			11,500

	Applied Factory Overhead—Stamping
October.31		i.	10,500	October.31	i.	10,500
			10,500			10,500

	Applied Factory Overhead—Plating
October.31		i.	11,500	October.31	i.	11,500
			11,500			11,500

	Factory Overhead—Power
October.31		g.	2,214.10	October.31	h.	2,995.75
		h.	781.65
			2,995.75			2,995.75

	Factory Overhead—Maintenance
October.31		g.	3,207.70	October.31	h.	3,207.70
			3,207.70			3,207.70

	Under- and Over-applied Overhead
				October.31	i.	250.00
						250.00

	Sales
				October.31	k.	43,140
						43,140

	Cost of Goods Sold
October.31		k.	28,760
			28,760

	Payroll
October.31		c.	53,300	October.31	c.	53,300
			53,300			53,300

	Salaries
October.31		c.	18,300
			18,300

	Payroll Tax Expense—Salaries
October.31		c.	2,379
			2,379

	Miscellaneous Selling & Administrative Expense
October.31		d.	1,500
			1,500

	Depreciation Expense—Office Equipment
October.31		e.	175
			175

To determine

Prepare materials inventory ledger cards and enter October 1 balances.

Explanation of Solution

Prepare materials inventory ledger cards and enter October 1 balances:

For Material A:

Table (1)

For Material B:

Table (2)

For Material C:

Table (3)

Factory supplies:

Particulars	Amounts ($)
Beginning balance	$ 1,800
Purchases	$ 3,200
Issued	($ 2,450)
Ending balance	$ 2,550

Table (4)

$\begin{array}{c}\text{Total purchases}=\left[\begin{array}{l}\text{Material A}+\text{Material B}\\ +\text{Material C}+\text{Factory Supplies}\end{array}\right]\\ =\left[\begin{array}{l}\text{\$28,600}+\text{\$15,300}\\ +\text{\$22,400}+\text{3,200}\end{array}\right]\\ =\text{69,500}\end{array}$

Total direct materials issued are $52,600$\left(\begin{array}{l}\$15,480+\$10,400+6,160\\ +3,400+5,960+11,200\end{array}\right)$ .

To determine

Prepare a Payroll Summary and Schedule of Earnings and Payroll Taxes for the month of October.

Explanation of Solution

Prepare a Payroll Summary and Schedule of Earnings and Payroll Taxes for the month of October:

Payroll Summary:

Particulars	Factory Employees	Sales and Administrative Employees	Total
Gross Earnings (A)	$ 35,000	$ 18,300	$ 53,300
Withholdings and deductions:
FICA tax	$ 2,800	$ 1,464	$ 4,264
Income tax	$ 3,500	$ 1,830	$ 5,330
Total (B)	$ 6,300	$ 3,294	$ 9,594
Net earnings (A+B)	$ 28,700	$ 15,006	$ 43,706

Table (5)

Compute the amount of total factory labor:

Particulars	Factory Employees
Job 905 $\left(\text{100}\times \text{\$9}\right)+\left(\text{300}\times \text{\$11}\right)$	$4,200
Job 1001$\left(\text{1,200}\times \text{\$9}\right)+\left(\text{300}\times \text{\$11}\right)$	14,100
Job 1002$\left(\text{800}\times \text{\$9}\right)$	7,200
Total direct labor	$25,500
Indirect labor	9,500
Total factory labor	35,000

Table (6)

Schedule of Earnings and Payroll Taxes:

Particulars	Gross Earnings	FICA	State	FUTA	Total Payroll Taxes
		8%	4%	1%
Non factory employees	$ 18,300	$ 1,464	$ 732	$ 183	$ 2,379
Factory employees	35,000	2,800	1,400	350	4,550
Total	$ 53,300	$ 4,264	$ 2,132	$ 533	$ 6,929

Table (7)

To determine

Prepare a job cost sheets as needed.

Explanation of Solution

Prepare a job cost sheets as needed:

Job Cost Sheet—Job 905
Date	Material		Direct labor		Factory Overhead
October 1		1500		1200		900
	Material C	5,960	Stamping	900	100 hr @5.00	500
			Plating	3,300	300 hr @19.167	5,750
	Totals	7,460		5,400		7,150
	Job total	20,010

Table (8)

Job Cost Sheet—Job 1001
Date	Material		Direct labor		Factory Overhead
October 1	Material A	15,480
	Material B	6,160	Stamping	10,800	1,200 hr @5.00	6,000
	Material C	11,200	Plating	3,300	300 hr @19.167	5,750
	Totals	32,840		14,100		11,750
	Job total	58,690

Table (9)

Job Cost Sheet—Job 1002
Date	Material		Direct labor		Factory Overhead
October 1	Material A	10,400
	Material B	3,400	Stamping	7,200	800 hr @5.00	4,000
	Totals	13,800		7,200		4,000
	Job total	25,000

Table (10)

To determine

Prepare journal entries for the given transactions for October.

Explanation of Solution

Prepare journal entries for the given transactions for October:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
October
a.	Materials		69,500
	Accounts Payable			69,500
	(To record the materials purchased)
b.	Work in Process		52,600
	Factory Overhead		2,450
	Materials			55,050
	(To record the issuance of materials to the factory)
c.	Payroll		53,300
	FICA Tax Payable			4,264
	Employees Income Tax Payable			5,330
	Wages Payable			43,706
	(To record the wages payable)
	Work in Process		25,500
	Factory Overhead		9,500
	Salaries		18,300
	Payroll			53,300
	(To record the distribution of payroll to work in process and overhead)
	Factory Overhead		4,550
	Payroll Tax Expense—Salaries		2,379
	FICA Tax Payable			4,264
	Federal Unemployment Tax Payable			533
	State Unemployment Tax Payable			2,132
	(To record the employer payroll taxes)
d.	Factory Overhead		4,230
	Miscellaneous, Selling & Administration Expense		1,500
	FICA Tax Payable		3,120
	Employees Income Tax Payable		5,200
	Cash			14,050
	(To record the payment made for expenses)
e.	Factory Overhead		900
	Depreciation Expense—Office Equipment		175
	Accumulated Depreciation—Factory Building $\left(\$64,000\times 5\%÷12\right)$			267
	Accumulated Depreciation—Machinery & Equipment $\left(\$38,000\times 20\%÷12\right)$			633
	Accumulated Depreciation—Office Equipment $\left(\$10,500\times 20\%÷12\right)$			175
	(To record the depreciation)
f.	Factory Overhead $\left(\$4,320÷36\right)$		120
	Prepaid Insurance			120
	(To record the insurance expired)
g.	Factory Overhead—Stamping		9,768.40
	Factory Overhead—Plating		6,559.80
	Factory Overhead—Power		2,214.10
	Factory Overhead—Maintenance		3,207.70
	Factory Overhead			21,750
	(To record the distribution of factory overhead to other departments)
h.	Factory Overhead—Stamping		1,728.15
	Factory Overhead—Plating		697.90
	Factory Overhead—Power		781.65
	Factory Overhead—Maintenance			3,207.70
	(To record the distribution of maintenance overhead to other departments)
	Factory Overhead—Stamping		1,497.87
	Factory Overhead—Plating		1,497.88
	Factory Overhead—Power			2,995.75
	(To record the distribution of power overhead to producing departments)
i.	Work in Process		22,000
	Applied Factory Overhead—Stamping $\left(\text{2,100}\times \$5.00\right)$			10,500
	Applied Factory Overhead—Plating $\left(\text{600}\times \$19.1667\right)$			11,500
	(To record the work in process)
	Applied Factory Overhead---Stamping		10,500
	Applied Factory Overhead---Plating		11,500
	Factory Overhead—Stamping			10,500
	Factory Overhead----Plating			11,500
	(To record the transfer of applied overhead to actual overhead)
	Factory Overhead—Plating		2,744.42
	Factory Overhead—Stamping			2,494.42
	Under- and Over applied Overhead			250
	(To record the transfer under- and over applied overhead to under- and over applied account)
j.	Finished Goods		78,700
	Work in Process			78,700
	(To record the finished goods during October)
k.	Accounts Receivable		43,140
	Sales			43,140
	Cost of Goods Sold $\left(\text{\$8,750}+\text{\$20,010}\right)$		28,760
	Finished Goods			28,760
	(To record sales made and cost of goods sold)
l.	Cash		55,500
	Accounts Receivable			55,500
	(To record the cash receipts)
m.	Wages Payable		43,706
	Cash			43,706
	(To record wages paid)

Table (11)

To determine

Prepare a service department expense distribution worksheet for October.

Explanation of Solution

Prepare a service department expense distribution worksheet for October:

Table (12)

To determine

Prepare a schedule to analyze the balance in the materials account, the work in process account, and the finished goods account.

Explanation of Solution

Prepare a schedule to analyze the balance in the materials account, the work in process account, and the finished goods account:

Material Summary—October 31
Particulars	Unit (a)	Unit  Cost (b)	Total $\left(\text{a}\times \text{b}\right)$
Material	220	$ 26	$ 5,720
Material B	620	17	10,540
Material C	380	26	10,640
Factory Supplies			2,550
Total			$ 29,450
Finished Goods Summary—October 31
Job 1001			$58,690
Work in Process Summary—October 31
Job 1002			$25,000

Table (13)

To determine

Prepare the statement of cost of goods manufactured for the month ended October 31.

Explanation of Solution

Prepare the statement of cost of goods manufactured for the month ended October 31:

Company C
Statement of Cost of Goods Manufactured
For the Month Ended October 31, 2016
Direct materials:
Inventory, October 1	$ 15,000
Add: Purchases	69,500
Total cost of materials available	$ 84,500
Less: Inventory, October 31	29,450
Cost of materials used	$ 55,050
Less: indirect materials used	2,450
Direct materials used	$ 52,600
Direct labor	25,500
Applied factory overhead	22,000
Total manufacturing cost	$ 100,100
Add: Work in process inventory, October 1	3,600
Total	$ 103,700
Less: work in process inventory, October 31	25,000
Cost of goods manufactured	$ 78,700

Table (14)