Chapter 12, Problem 14E

a)

To determine

Journalize the given transactions.

Explanation of Solution

Lean Manufacturing: Lean manufacturing aims at reducing the cost and minimizing the waste involved in the production, in order to optimize the value for the product or the service.

Lean Accounting: Lean accounting refers to the accounting standards that support the concepts of lean manufacturing. They record and reflect the transactions done to assist lean manufacturing.

1. Materials purchased to produce 2,000 units.

Date	Account Title	Debit ($)	Credit ($)
June	Raw and In-Process Inventory  (1)	$96,000
	Accounts payable		$96,000
	(Purchase of goods on account)

Table (1)

• • Raw materials are purchased, which is an asset increased. Hence debit the raw and in-process inventory with $96,000.
• • Accounts payable is a liability increased; hence credit the accounts payable account with $96,000.

Working Note:

(1) Calculate the amount of goods purchased.

$\begin{array}{c}\text{Raw and In-Process Inventory }=\text{ Cost per unit}\times \text{Number of units}\\ =\$48\times 2000\text{units}\\ =\$96,000\end{array}$

The cost of raw and in-process inventory is $96,000.

2. Conversion cost applied to 1,800 units.

Date	Account Title	Debit ($)	Credit ($)
June	Raw and In-Process Inventory  (2)	$45,000
	Conversion Costs		$45,000
	(The conversion costs involved in the production)

Table (2)

• • Value is added to the raw materials, which is an asset increased. Hence debit the raw and in-process inventory with $45,000.
• • Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $45,000.

Working Note:

(2) Calculate the amount value added.

$\begin{array}{c}\begin{array}{l}\text{Raw and In-Process}\\ \text{Inventory}\end{array}\}=\left[\text{Conversion Cost per unit}\right]\times \text{Number of units}\\ \text{=}\left[\frac{\text{Total Conversion Cost}}{\text{Total Time Taken}}\times \frac{\text{Time Taken per unit}}{\text{Cost per unit}}\right]\times \left(\begin{array}{l}\text{Number }\\ \text{of units}\end{array}\right)\\ =\left[\frac{\$50,000}{800\text{hours}}\times \frac{24\text{minutes}}{60\text{minutes}}\right]\times 1,800\text{units}\\ =\$25\times 1,800\text{units}\\ =\$45,000\end{array}$

The cost of conversion for 1,800 units is $45,000.

3. Completion of 1,700 units of Style Omega.

Date	Account Title	Debit ($)	Credit ($)
June	Finished Goods Inventory  (3)	$124,100
	Raw and In-Process Inventory		$124,100
	(The completion of 1,700 units placed in finished goods)

Table (3)

• • Value is added to the finished goods, which is an asset increased. Hence debit the finished goods inventory with $124,100.
• • Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $124,100.

Working Note:

(3) Calculate the amount value added.

$\begin{array}{c}\text{Finished Goods Inventory}=\left(\begin{array}{l}\text{Cost per unit}+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ =\left(\$48+\$25\right)\times 1,700\text{units}\\ =\$73\times 1,700\text{units}\\ =\$124,100\end{array}$

The cost of conversion for 1,700 units is $124,100.

4. Sold 1,600 units of Style Omega.

Date	Account Title	Debit ($)	Credit ($)
June	Accounts receivable	$144,000
	Sales   (4)		$144,000
	(Sold 1,600 units of Style Omega)

Table (4)

• • Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $144,000.
• • Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $144,000.

Working Note:

(4) Calculate the amount value added.

$\begin{array}{c}\text{Sales}=\text{Price per unit}\times \text{Number of units}\\ =\$90\times 1,600\text{ units}\\ =\$144,000\end{array}$

The sales price for 1,600 units is $144,000.

5. Record the cost of goods sold.

Date	Account Title	Debit ($)	Credit ($)
June	Cost of Goods sold  (5)	$116,800
	Finished Goods Inventory		$116,800
	(The cost of goods sold is recorded)

Table (5)

• • Cost of goods sold, is an asset decreased. Hence debit the cost of goods sold with $116,800.
• • Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $116,800.

Working Note:

(5) Calculate the amount value added.

$\begin{array}{c}\text{Cost of Goods sold}=\left(\begin{array}{l}\text{Cost per unit}+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ =\left(\$48+\$25\right)\times 1,600\text{units}\\ =\$73\times 1,600\text{ units}\\ =\$116,800\end{array}$

The cost of goods sold for 580 units is $116,800.

b)

To determine

Calculate the closing balance for Raw in Process Inventory and Finished Goods inventory.

Explanation of Solution

1.

Calculate the closing balance for Raw in Process Inventory.

$\begin{array}{c}\text{Raw in Process Inventory}=\text{Purchase Cost }+\text{Conversion Cost}-\text{Finished goods}\\ =(\$96,000+\$45,000)-\$124,100\\ =\$141,000-\$124,100\\ =\$16,900\end{array}$

Hence, the closing balance for Raw in Process Inventory is $16,900.

2.

Calculate the closing balance for finished goods inventory.

$\begin{array}{c}\text{Finished goods inventory}=\text{Finished goods inventory}-\text{Cost of goods sold}\\ =\$124,100-\$116,800\\ =\$7,300\end{array}$

Hence, the closing balance for finished goods inventory is $7,300.