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exercise 3-2 (static) prepare t-accounts lo3-2, lo3-4 jurvin enterprise…

Question

exercise 3-2 (static) prepare t-accounts lo3-2, lo3-4

jurvin enterprises is a manufacturing company with no beginning inventories. a subset of the transactions it recorded during a recent month is shown below.

a. purchased $94,000 in raw materials for cash.
b. $89,000 in raw materials were used in production. of this amount, $78,000 was direct materials and the remainder was indirect materials.
c. paid employees $132,000 cash. of this amount, $112,000 was direct labor and the remainder was indirect labor.
d. paid $143,000 for additional manufacturing overhead costs.
e. applied manufacturing overhead of $152,000 to production using the companys predetermined overhead rate.
f. all of the jobs in process at the end of the month were completed.
g. all of the completed jobs were shipped to customers.
h. any underapplied or overapplied overhead was closed to cost of goods sold.

required:

  1. post the above transactions to t-accounts.
  2. calculate the adjusted cost of goods sold for the period.

Explanation:

Analyze the transactions and T-accounts

Using the T-Account Analysis knowledge point, we first examine the transactions and the partially completed T-accounts to determine the flow of costs.

  • Beginning Inventories: The problem states there are no beginning inventories, so all beginning balances are \(0\).
  • Raw Materials:
  • Purchased: \$94,000 (Debit Raw Materials, Credit Cash).
  • Used in production: \$89,000 (Credit Raw Materials). Of this, \$78,000 is direct materials (Debit Work in Process) and the remainder, \(\$89,000 - \$78,000 = \$11,000\), is indirect materials (Debit Manufacturing Overhead).
  • Labor:
  • Paid employees: \$132,000 (Credit Cash). Of this, \$112,000 is direct labor (Debit Work in Process) and the remainder, \(\$132,000 - \$112,000 = \$20,000\), is indirect labor (Debit Manufacturing Overhead).
  • Manufacturing Overhead Costs:
  • Paid additional overhead costs: \$143,000 (Debit Manufacturing Overhead, Credit Cash).
  • Applied overhead: \$152,000 (Debit Work in Process, Credit Manufacturing Overhead).

Determine Work in Process and Finished Goods flows

Using the Work in Process T-Account knowledge point, we calculate the total manufacturing costs added to Work in Process (WIP):

  • Direct Materials: \$78,000
  • Direct Labor: \$112,000
  • Applied Overhead: \$152,000
  • Total costs in WIP: \(\$0 + \$78,000 + \$112,000 + \$152,000 = \$342,000\).
  • Since all jobs in process at the end of the month were completed (transaction f), the ending balance of WIP is \$0, and the Cost of Goods Manufactured transferred to Finished Goods is \$342,000 (Credit WIP, Debit Finished Goods).
  • Since all completed jobs were shipped to customers (transaction g), the Cost of Goods Sold before adjustment is \$342,000 (Credit Finished Goods, Debit Cost of Goods Sold).

Calculate underapplied or overapplied overhead

Using the Manufacturing Overhead T-Account knowledge point, we determine the actual and applied overhead to find the variance:

  • Actual Overhead (Debits):
  • Indirect materials: \$11,000
  • Indirect labor: \$20,000
  • Additional overhead: \$143,000
  • Total Actual Overhead = \(\$11,000 + \$20,000 + \$143,000 = \$174,000\)
  • Applied Overhead (Credits):
  • Applied to WIP: \$152,000
  • Overhead Variance:
  • Since Actual Overhead (\$174,000) is greater than Applied Overhead (\$152,000), overhead is underapplied.
  • Underapplied Overhead = \(\$174,000 - \$152,000 = \$22,000\).

Calculate adjusted cost of goods sold

Using the Adjusted Cost of Goods Sold knowledge point, we adjust the unadjusted Cost of Goods Sold for the underapplied overhead:

  • Unadjusted Cost of Goods Sold = \$342,000
  • Underapplied overhead means actual costs were higher than applied costs, so we must increase Cost of Goods Sold to close out the overhead account.
  • Adjusted Cost of Goods Sold = \(\text{Unadjusted COGS} + \text{Underapplied Overhead}\)
  • Adjusted Cost of Goods Sold = \(\$342,000 + \$22,000 = \$364,000\).

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Answer:

Question 1

The completed T-accounts are posted as follows:

  • Cash:
  • Debit: Beginning balance = \$0
  • Credit: (a) \$94,000, (c) \$132,000, (d) \$143,000
  • Ending balance (Credit) = \$369,000
  • Raw Materials:
  • Debit: Beginning balance = \$0, (a) \$94,000
  • Credit: (b) \$89,000
  • Ending balance (Debit) = \$5,000
  • Work in Process:
  • Debit: Beginning balance = \$0, (b) \$78,000, (c) \$112,000, (e) \$152,000
  • Credit: (f) \$342,000
  • Ending balance (Debit) = \$0
  • Finished Goods:
  • Debit: Beginning balance = \$0, (f) \$342,000
  • Credit: (g) \$342,000
  • Ending balance (Debit) = \$0
  • Manufacturing Overhead:
  • Debit: Beginning balance = \$0, (b) \$11,000, (c) \$20,000, (d) \$143,000
  • Credit: (e) \$152,000
  • Underapplied overhead closed to COGS: Credit \$22,000 to close the account.
  • Ending balance = \$0
  • Cost of Goods Sold:
  • Debit: Beginning balance = \$0, (g) \$342,000, (h) \$22,000 (underapplied overhead adjustment)
  • Ending balance (Debit) = \$364,000

Question 2

The adjusted cost of goods sold for the period is \$364,000.