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Chapter 19: 19-5TI (page 1053)

Malone Company has adopted a JIT management system and has the following transactions in August:

a. Purchased raw materials on account, \(50,000.

b. Incurred labor and overhead costs, \)70,000.

c. Completed 500 units with standard costs of \(95 for direct materials and \)150 for conversion costs.

d. Sold on account 475 units for $300 each.

10. Record the journal entries for Malone Company for August.

11. Open a T-account for Conversion Costs

Short Answer

Expert verified

Finished Goods Inventory: $122,500

Over Allocated Conversion Cost: $5,000

Step by step solution

01

Journal Entries

Date

Description

Debit

Credit

a)

Raw and In-process Inventory

$50,000

Accounts Payable

$50,000

Being inventory purchased

b)

Conversion Cost

$70,000

Overhead payable

$70,000

Being labor and overhead cost incurred

c)

Finished Goods Inventory

$122,500

Raw and In-process Inventory

$47,500

Conversion Cost

$75,000

Being inventory and overhead costs transferred

d)

Accounts Receivables

$142,500

Sales revenue

$142,500

Being Sales made on account

Cost of goods sold

$116,375

Finished Goods Inventory

$116,375

Being cost of goods incurred for sale

02

‘T’ account for Conversion Cost

Conversion Cost

Date

Particular

Amount

Date

Particular

Amount

b)

Overheads payable

$70,000

c)

Finished Goods inventory

$75,000

Aug 31

Cost of Goods Sold

$5,000

Journal Entry for overallocation

Date

Description

Debit

Credit

Aug 31

Conversion Cost

$5,000

Cost of Goods Sold

$5,000

Being over allocation adjusted

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Most popular questions from this chapter

Jaunkas Corp. manufactures mid-fi and hi-fi stereo receivers. The following data have been summarized:

Mid-Fi Hi-Fi

Direct materials cost per unit \( 400 \) 1,800

Direct labor cost per unit 600 400

Indirect manufacturing cost per unit ? ?

Indirect manufacturing cost information includes the following:

Activity

Predetermined

Overhead

Allocation Rate

Mid-Fi

Hi-Fi

Setup

\( 1,400 per setup

36 setups

36 setups

Inspection

\) 700 per inspection hour

35 inspection hours

20 inspection hours

Machine maintenance

$ 13 per machine hour

1,900 machine hours

1,150 machine hours

The company plans to manufacture 125 units of the mid-fi receivers and 250 units of the hi-fi receivers. Calculate the product cost per unit for both products using activity-based costing.

The Alright Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in smartphones. Consider the following data regarding component T24 (amounts are per unit):

Direct materials cost \( 80.00

Direct labor cost 20.00

Activity-based costs allocated ?

Total manufacturing product cost ?

The activities required to build the component follow:

Activity Allocation Base Cost Allocated to Each Unit

Start station Number of raw component chassis 4 * \) 1.50 = \( 6.00

Dip insertion Number of dip insertions ? * 0.30 = 9.60

Manual insertion Number of manual insertions 10 * 0.50 = ?

Wave solder Number of components soldered 4 * 1.90 = 7.60

Backload Number of backload insertions 7 * ? = 4.20

Test Number of testing hours 0.43 * 90.00 = ?

Defect analysis Number of defect analysis hours 0.15 * ? = 12.00

Total activity-based costs \) ?

Requirements

2. Why might managers favor this ABC system instead of Alright鈥檚 older system, which allocated all manufacturing overhead costs on the basis of direct labor hours?

Spectrum Corp. makes two products: C and D. The following data have been summarized:

Product C Product D

Direct materials cost per unit \( 600 \) 2,400

Direct labor cost per unit 300 200

Indirect manufacturing cost per unit ? ?

Indirect manufacturing cost information includes the following:

Activity Predetermined

Overhead

Allocation Rate Product C Product D

Setup \( 1,500 per setup 35 setups 76 setups

Machine maintenance \) 10 per MHr 1,500 MHr 3,700 MHr

The company plans to manufacture 250 units of each product. Calculate the product cost per unit for Products C and D using activity-based costing.

Question:Stella, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella鈥檚 senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predetermined overhead allocation rates for each activity.

Activity Predicted Predetermined

Reduction in Overhead Allocation

Activity Units Rate per Unit

Inspection of incoming raw materials 390 $ 44

Inspection of finished goods 390 19

Number of defective units discovered in-house 1,200 50

Number of defective units discovered by customers 325 72

Lost profits due to dissatisfied customers 75 102

Requirements

1. Calculate the predicted quality cost savings from the design engineering work.

Clason, Inc. manufactures door panels. Suppose Clason is considering spending the following amounts on a new total quality management (TQM) program:

___________________________________________________________________

Strength-testing one item from each batch of panels \( 68,000

Training employees in TQM 27,000

Training suppliers in TQM 39,000

Identifying suppliers who commit to on-time delivery of

perfect-quality materials 58,000

Clason expects the new program would save costs through the following:

___________________________________________________________________

Avoid lost profits from lost sales due to disappointed customers \) 86,000

Avoid rework and spoilage 63,000

Avoid inspection of raw materials 57,000

Avoid warranty costs 15,000

Requirements

1. Classify each cost as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.

2. Should Clason implement the new quality program? Give your reason.

Answer
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