Major League Bat Company manufactures baseball bats. Additionally to its goods in process inventories, company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials. Its factory payroll costs include direct labor for production and indirect labor. All materials are added at beginning of the process, and direct labor and factory overhead are applied uniformly all through the production process.
Required
You are required to maintain records and produce measures of inventories to reflect July events of this company.
Set up the following general ledger accounts and enter June 30 balances: Raw Materials Inventory, $25,000; Goods in Process Inventory, $8,135 ($2,660 of direct materials, $3,650 of direct labor, and $1,825 of overhead); Finished Goods Inventory, $110,000; Sales, $0; Cost of Goods Sold, $0; Factory Payroll, $0; and Factory Overhead, $0.
1. Create journal entries to record following July transactions and events.
a. Purchased raw materials for $125,000 cash (company uses a perpetual inventory system).
b. Used raw materials as follows: direct materials, $52,440; and indirect materials, $10,000.
c. Incurred factory payroll cost of $227,250 paid in cash (ignore taxes).
d. Assigned factory payroll costs as follows: direct labor, $202,250; and indirect labor, $25,000.
e. Incurred extra factory overhead costs of $80,000 paid in cash.
f. Allocated factory overhead to production at 50% of direct labor costs.
2. Information about July inventories follows. Use this information with that from part 1 to create a process cost summary, assuming weighted-average method is used.
Units
Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . 5,000 units
Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14,000 units
Ending inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 units
Beginning inventory
Materials—Percent complete . . . . . . . . . . . . . . . . 100%
Labor and overhead—Percent complete . . . . . . . 75%
Ending inventory
Materials—Percent complete . . . . . . . . . . . . . . . . 100%
Labor and overhead—Percent complete . . . . . . . 40%
3. Using results from part 2 and available information, make calculations and prepare journal entries to record the following:
a. Total costs transferred to finished goods for July (label this entry g).
b. Sale of finished goods costing $265,700 for $625,000 in cash (label this entry h).
4. Post entries from parts 1 and 3 to the ledger accounts set up at beginning of the problem.
5. Calculate amount of gross profit from the sales in July.