Question

Bodin Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the following inventories at the beginning and end of the month of January. January 1 January 31 Finished goods $ 125,000 $ 117,000 Work in process 235,000 251,000 Raw material 133,000 124,000 The following additional data pertain to January operations. Raw material purchased $ 191,000 Direct labor 400,000 Actual manufacturing overhead 170,000 Actual selling and administrative expenses 120,000 The company applies manufacturing overhead at the rate of 60 percent of direct-labor cost. Any overapplied or underapplied manufacturing overhead is accumulated until the end of the year.
Required:

1. Compute the company’s prime cost for January.

Prime Cost:

2. Compute the total manufacturing cost for January.

Total Manufacturing Cost:

3. Compute the cost of goods manufactured for January.

COGM:

4. Compute the cost of goods sold for January.

COGS:

5. Compute the balance in the manufacturing overhead account on January 31. Debit or credit?

Manufacturing overhead account balance on January 31 is ___________ and is ____________. (Debit or Credit)

Answer 1

Answer:

Part 1. Compute the company’s prime cost for January

Prime cost = Direct Materials + Direct Labor

Prime Cost =

Direct Material     200,000

Add Direct Labor 400,000

Prime Cost            600,000

Therefore Prime Cost is $600,000

Part 2. Compute the total manufacturing cost for January.

Total manufacturing cost = Prime Cost + Manufacturing Overheads

Prime Cost                                      600,000

Add Manufacturing Overheads     240,000

Total manufacturing cost               840,000

Therefore  total manufacturing cost is $840,000

Part 3. Compute the cost of goods manufactured for January

Cost of goods manufactured = Total Manufacturing Cost + Opening Work in Progress - Closing Work in Progress

Total Manufacturing Cost            840,000

Add Opening Work in Progress  235,000

Less Closing Work in Progress    251,000

Cost of goods manufactured       824,000

Therefore  Cost of goods manufactured is $824,000

Part 4. Compute the cost of goods sold for January.

cost of goods sold = Opening Stock of Finished Goods + Cost of Goods Manufactured - Closing Stock of Finished Goods

Opening Stock of Finished Goods          125,000

Add Cost of Goods Manufactured          824,000

Less Closing Stock of Finished Goods    117,000

Cost of goods sold                                   832,000

Therefore Cost of goods sold is $832,000

Part 5. Compute the balance in the manufacturing overhead account on January 31

Open The Manufacturing Overhead Account as Follows

Debits :

Actual Manufacturing Overhead            170,000

Balancing Figure (Over-applied)              70,000

Credits:

Applied Manufacturing Overheads       240,000

Therefore Manufacturing overhead account balance on January 31 is $ 70,000 and is a Debit

Explanation:

Part 1. Compute the company’s prime cost for January

Calculation of Raw Materials Consumed In Production

Opening Stock of Raw Materials              133,000

Add Raw Materials Purchased                  191,000

Less Closing Stock of Raw Materials       124,000

Raw Materials Consumed in Production 200,000

Part 2. Compute the total manufacturing cost for January.

Calculation of Manufacturing Overheads

We use the applied overheads instead of actual overheads to calculate total manufacturing costs.

Note that the company applies manufacturing overhead at the rate of 60 percent of direct-labor cost.

Therefore Manufacturing Overheads = $400,000×60%

                                                                 = $240,000