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Chapter 19: Q28E (page 1074)

Question:Lally, Inc. produces universal remote controls. Lally uses a JIT costing system. One of the company鈥檚 products has a standard direct materials cost of \(9 per unit and a standardconversion cost of \)35 per unit. During January 2018, Lally produced 500 unitsand sold 495 units on account at \(45 each. It purchased \)4,800 of direct materials onaccount and incurred actual conversion costs totaling \(14,000.

Requirements

1. Prepare summary journal entries for January.

2. The January 1, 2018, balance of the Raw and In-Process Inventory account was\)70. Use a T-account to find the January 31 balance.

3. Use a T-account to determine whether conversion costs are overallocated orunderallocated for the month. By how much? Prepare the journal entry to adjustthe Conversion Costs account.

Short Answer

Expert verified

Ending balance for Raw and In-process inventory:$370

Over allocated cost:3,500

Step by step solution

01

Step-by-Step-SolutionStep1: Journal Entries

Date

Description

Debit

Credit

Trans 1

Raw and In-process Inventory

$4,800

Accounts Payable

$4,800

Being inventories purchased on account

Trans 2

Conversion Cost

$14,000

Expenses Payable

$14,000

Being conversion cost incurred

Trans 3

Finished Goods Inventory

$21,780

Raw and In-process inventory

$4,500

Conversion cost

$17,500

Being inventory and cost transferred to finished goods

Trans 4

Accounts Receivables

$22,275

Sales revenue

$22,275

Being Sales made

Trans 5

Cost of goods sold

$21,780

Finished Goods Inventory

$21,780

Cost of goods sold recorded

02

Raw and In-process inventory account

Date

Particular

Amount

Date

Particular

Amount

Jan 1

Opening balance

$70

Tran 3

Finished Goods Invt

$4,500

Jan

Accounts payable

$4,800

Jan 31

Closing balance

$370

03

Conversion Cost account

Date

Particular

Amount

Date

Particular

Amount

Tran 2

Expenses Payable

$14,000

Jan

Finished Goods Invt

$17,500

Jan 31

Cost of goods sold

$3,500

04

Journal Entry

Date

Description

Debit

Credit

Jan 31

Conversion Cost

$3,500

Cost of goods sold

$3,500

Being cost conversion over-allocated

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Most popular questions from this chapter

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

2. Stella spent \)103,000 on design engineering for the new skateboard. What is the net benefit of this 鈥減reventive鈥� quality activity?

Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company鈥檚 original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of \(22 per direct labor hour.

A task force headed by Harris鈥檚 CFO recently designed an ABC system with four activities. The ABC system retains the current system鈥檚 two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

___________________________________________________________________

Activity Allocation Base Predetermined Overhead

Allocation Rate____

Materials handling Number of parts \) 0.85

Machine setup Number of setups 500.00

Assembling Number of assembling hours 80.00

Shipping Number of shipments 1,500.00_______

Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

____________________________________________________________

Job A Job B__

Number of parts 15,000 2,000

Number of setups 6 4

Number of assembling hours 1,500 200

Number of shipments 1 1

Total direct labor hours 8,000 600

Number of units produced 100 10

Direct materials cost \( 220,000 \) 30,000

Direct labor cost \( 160,000 \) 12,000__

Requirements

3. Which costing system more accurately assigns to jobs the costs of the resources consumed to produce them? Explain.

Bubba and Danny are college friends planning a skiing trip to Killington before the New Year. They estimated the following for the trip:

Estimated Activity Allocation

Costs Allocation Base Bubba Danny

Food \( 400 Pounds of food eaten 24 26

Skiing 300 Number of lift tickets 2 0

Lodging 280 Number of nights 2 2

\) 980

Requirements

1. Bubba suggests that the costs be shared equally. Calculate the amount each person would pay.

Define value engineering. How is it used to control costs?

Darby Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:

Activity Cost Allocation Base

Setup \( 105,000 Number of setups

Machine maintenance 60,000 Number of machine hours

Total indirect manufacturing costs \) 165,000

Product A Product B Total

Direct labor hours 7,000 5,000 12,000

Number of setups 30 170 200

Number of machine hours 1,600 2,400 4,000

Darby plans to produce 375 units of Product A and 250 units of Product B. Compute the ABC indirect manufacturing cost per unit for each product.
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