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Chapter 19: Q13SE (page 1068)

Prime Products uses a JIT management system to manufacture trading pins. The standard cost per pin is \(2 for direct materials and \)3 for conversion costs. Last month, Prime recorded the following data:

Number of pins completed 4,100 pins

Number of pins sold (on account at \(7 each) 3,700 pins

Raw material purchases (on account) \) 7,000

Conversion costs $ 14,500

Use JIT costing to prepare journal entries for the month, including the entry to adjust the Conversion Costs account.

Short Answer

Expert verified

The unallocated conversion cost amounts to $2,200.

Step by step solution

01

Journal entries for last month’s transactions

Date

Description

Debit

Credit





Trans. 1

Raw and In-Process Inventory

$ 7,000



Accounts Payable


$ 7,000


Being inventories purchased on credit







Trans. 2

Conversion Costs

14,500



Labor and overheads cost payable


14,500


Being conversion cost incurred







Trans. 3

Finished goods inventory

20,500



Raw and In-process inventory


8,200


Conversion Costs


12,300


Being completed 4,100 goods transferred to the finished inventory account at standard cost



02

Journal entries for Sales transaction

Date

Description

Debit

Credit





Trans. 4

Accounts Receivables

$ 25,900



Sales Revenue


$ 25,900


Being goods sold on credit







Trans. 5

Cost of goods sold

18,500



Finished goods inventory


18,500


Being cost of goods sold for sold units at standard cost



03

Journal entries for Adjustment

Date

Description

Debit

Credit





Trans. 6

Cost of goods sold

$ 2,200



Conversion cost


$ 2,200


Being under-allocated conversion cost transferred to cost of goods sold account



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Most popular questions from this chapter

Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.

Low Range has two inventory accounts: Raw and In-Process Inventory and

Finished Goods Inventory. On March 1, 2018, the account balances were Raw and In-Process Inventory, \(9,000; Finished Goods Inventory, \)1,700.

The standard cost of a jacket is \(40, composed of \)12 direct materials plus \(28 conversion costs. Data for March鈥檚 activities follow:

Number of jackets completed 15,000

Number of jackets sold (on account, for \)50 each) 14,600

Direct materials purchased (on account) \( 177,500

Conversion costs incurred \) 521,000

Requirements

2. Prepare summary journal entries for March. Underallocated or overallocated conversion costs are adjusted to Cost of Goods Sold monthly.

Harcourt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 96,000 Number of kilos 24,000 kilos

Packaging 210,000 Number of machine hours 3,000 hours

Quality assurance 114,000 Number of samples 1,900 samples

Total indirect costs \) 420,000

Other production information includes the following:

Commercial Containers Travel Packs

Units produced 2,800 containers 51,000 packs

Weight in kilos 9,800 5,100

Machine hours 1,960 510

Number of samples 560 765

Requirements

3. Use the predetermined overhead allocation rates to compute the activity-based costs per unit of the commercial containers and the travel packs. Round to two decimal places. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)

Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin鈥檚 activity areas and related data follow:

Activity

Budgeted Cost of Activity

Allocation Base

Predetermined Overhead Allocation Rate

Materials handling

\( 230,000

Number of parts

\)1.50

Assembly

3,200,000

Number of assembling direct labor hours

16.00

Finishing

150,000

Number of finished units*

3.00

*Refers to the number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Martin produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Product

Total Units Produced

Total Direct materials Costs

Total Direct Labor Costs

Total Number of Parts

Total Assembling Direct Labor Hours

Standard bookcase

3,000

\(54,000

\)67,500

9,000

4,500

Unfinished bookcase

3,500

56,000

52,500

7,000

3,500

Requirements

3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference.

Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Inspections \( 5,700 Number of inspections

Machine setup 22,000 Number of setups

Machine maintenance 6,000 Finishing of machine hours

Total \) 33,700

Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.

Requirements

1. Compute the predetermined overhead allocation rate for each activity.

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.
See all solutions

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