xercise 7-24 (Static) Assigning Costs to Jobs (LO 7-1, 2) Forest Components makes aircraft parts. The following transactions occurred in July. Purchased $119,000 of materials on account. Issued $117,600 in direct materials to the production department. Issued $8,400 of supplies from the materials inventory. Paid for the materials purchased in transaction (1) using cash. Returned $15,400 of the materials issued to production in (2) to the materials inventory. Direct labor employees earned $217,000, which was paid in cash. Purchased miscellaneous items for the manufacturing plant for $120,400 on account. Recognized depreciation on manufacturing plant of $245,000. Applied manufacturing overhead for the month. Forest uses normal costing. It applies overhead on the basis of direct labor costs using an annual, predetermined rate. At the beginning of the year, management estimated that direct labor costs for the year would be $3,000,000. Estimated overhead for the year was $2,790,000. The following balances appeared in the inventory accounts of Forest Components for July. Beginning Ending Materials Inventory ? $88,200 Work-in-Process Inventory ? 73,500 Finished Goods Inventory $18,200 49,700 Cost of Goods Sold ? 521,500 Required: a. Prepare journal entries to record these transactions. b. Prepare T-accounts to show the flow of costs during the period from Materials Inventory through Cost of Goods Sold.

Forest Components

a. Journal Entries

1. Debit Raw materials $119,000

Credit Accounts payable $119,000

To record purchase of materials on account.

2. Debit Work in Process $117,600

Credit Raw materials $117,600

To record transfer of materials to production.

3. Debit Overhead $8,400

Credit Raw materials $8,400

To record indirect materials used.

4. Debit Accounts payable $119,000

Credit Cash $119,000

To record payment for materials.

5. Debit Raw materials $15,400

Credit Work in Process $15,400

To record the return of materials to warehouse.

6. Debit Work in Process $217,000

Credit Cash $217,000 (direct labor)

To record the payment for direct labor.

7. Debit Overhead $120,400

Credit Account payable $120,400

Purchase of miscellaneous items for manufacturing plant.

8. Debit Overhead $245,000

Credit Depreciation expense $245,000

To record depreciation expense for overhead

9. Debit Work in Process $201,810  

Credit Overhead $201,810

To record overhead applied.

b. T-accounts:

Materials Inventory

Account Titles              Debit        Credit

Beginning balance    $79,800

Accounts payable    $119,000

Work in Process                         $117,600

Overhead                                        8,400

Work in Process          15,400

Ending Balance                            88,200

                                 214,200    214,200

Work in Process Inventory

Account Titles              Debit        Credit

Beginning balance  $105,490

Raw materials             117,600

Raw materials                               $15,400

Direct labor (cash)     217,000

Overhead                   201,810

Finished Goods                           553,000

Ending Balance                             73,500

                               $641,900   $641,900

Overhead

Account Titles              Debit        Credit

Raw materials              $8,400

Accounts payable      120,400

Depreciation exp.     245,000

Work in Process                          $201,810

Finished Goods Inventory

Account Titles              Debit        Credit

Beginning balance      $18,200

Work in Process         553,000

Cost of goods sold                    $521,500

Ending balance                           $49,700

Cost of Goods Sold

Account Titles              Debit        Credit

Finished Goods        $521,500

Explanation:

a) Data and Analysis:

1. Raw materials $119,000 Accounts payable $119,000

2. Work in Process $117,600 Raw materials $117,600

3. Overhead $8,400 Raw materials $8,400

4. Accounts payable $119,000 Cash $119,000

5. Raw materials $15,400 Work in Process $15,400

6. Work in Process $217,000 Cash $217,000 (direct labor)

7. Overhead $120,400 Account payable $120,400

8. Overhead $245,000 Depreciation expense $245,000

9. Work in Process $201,810  Overhead $201,810 ($217,000 * $0.93)

Estimated direct labor costs = $3,000,000

Estimated overhead costs = $2,790,000

Predetermined overhead rate = $2,790,000/$3,000,000 = $0.93

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