Chapter 20, Problem 20CP

To determine

Concept introduction

Inventory can be valued at LIFO, FIFO or weighted average method. LIFO means last in first out, in other words the goods which came last can go further first. FIFO means first in first out, in other words the goods which come first can go further first. In both the methods, stock should be valued as last or first stock comes in. while as per weighted average method , remaining stock will be valued at equal rate. In other words whole stock should be totaled and divided by number of weights so that average weight should be found out. This average rate should be multiplied by closing stock.

Requirement 1:

We have to determine the journal entry for various transactions.

Answer to Problem 20CP

Solution:

	journal titles	debit($)	credit($)
a.	Raw material inventory	125,000
	cash		125,000
	( to record purchase of raw material)
b.	factory overhead	10,000
	raw material inventory		10,000
	(to record indirect materials)
	work in process	52,440
	raw material inventory		52,440
	( to record direct material assigned to job)
c.	factory overhead	25,000
	factory payroll		25,000
	( to record indirect labor)
	work in process	202,250
	factory payroll		202,250
	( to record direct labor)
d.	factory payroll	227,250
	cash		227,250
	(to record factory payroll cost)
e.	factory overhead	80,000
	cash		80,000
	( to record additional factory overhead)
f.	work in process	101,125
	factory overhead( 50% of direct labor)		101,125
	( to record allocated factory overhead)

Explanation of Solution

1. When raw material is purchased for cash then raw material inventory account will be debited and cash account will be credited.
2. When direct material and indirect material has been used then factory overhead and work in process account will be debited and raw material inventory account will be credited.
3. When direct and indirect labor is used in production then factory overhead and work in process account will be debited and factory payroll account will be credited.
4. When factory payroll cost is to be paid then factory payroll account will be debited and cash account will be credited.
5. When additional factory overhead is to be paid then factory overhead account will be debited and cash account will be credited.
6. When allocated factory overhead is to be recorded then work in process account will be debited and factory overhead account will be credited.

Requirement 2:

To determine

We have to prepare the process cost summary using weighted average method.

Answer to Problem 20CP

Solution:

Process cost summary

Calculation of cost transferred out
Cost transferred out	Equivalent units	Cost per unit	Total cost
Material	11000	2.9	31900
Conversion cost	11000	21.75	239250
Cost transferred out			271150

Explanation of Solution

Statement of Equivalent units
Particulars	Material	Conversion cost
Transferred out (a)	11000	11000
Closing units (b)	8000	8000
Percentage of completion (c)	100%	40%
Equivalent units (d) (b*c)	8000	3200
Total Equivalent units (a+d)	19000	14200
Cost per equivalent units
Particulars	Material	Conversion cost
Beginning cost	2660	5475
Cost added	52440	202250
Factory O/H cost added		101125
Total	55100	308850
Equivalent units	19000	14200
Cost per unit	2.9	21.75

Cost of closing inventory
Particulars	Equivalent units	Cost per unit	Total cost
Material	8000	2.9	23200
Conversion cost	3200	21.75	69600
closing inventory cost			92800

Requirement 3:

To determine

We have to determine the journal entry for various transactions.

Answer to Problem 20CP

Solution:

	journal titles	debit($)	credit($)
g.	finished goods	271,150
	work in process inventory		271,150
	( to record finished goods)
h.	cash	625,000
	sales		625,000
	( to record sale of finished goods)

Explanation of Solution

1. When finished goods is to be recorded then finished goods account will be debited and work in process account will be credited.
2. When sale is to be recorded then cash account will be debited and sales account will be credited.

Requirement 4:

To determine

We have to determine the ledger accounts.

Explanation of Solution

raw material inventory
opening balance	25,000	entry (b)	62,440
Purchase	125,000
Balance	87,560

work in process inventory
opening balance	8,135	Entry(g)	271,150
entry (b)	52,440
entry©	202,250
entry(f)	101,125
balance	92,800

finished goods inventory
opening balance	110,000	cost of goods sold	265,700
Entry (g)	271,150
balance	115,450

sales
Entry(h)	625,000

cost of goods sold
finished goods	265700	factory overhead	13,875
balance	251825

factory overhead
entry(c)	25,000
cost of goods sold	13,875
balance	38,875

Requirement 5:

To determine

We have to determine the gross profit from sales in july.

Answer to Problem 20CP

Solution:

The gross profit is $373,175

Explanation of Solution

Calculation of over-applied overhead -

Overhead		101,125
Less: overhead incurred
Indirect materials	$10,000
Indirect labor	25,000
additional overhead	80,000
Over-applied overhead		$ 13,875

Calculation of gross profit:

particulars	amount($)
sales	625,000
less: cost of goods sold(265700-13875)	251,825
gross profit	373,175