Question

Major League Bat Company manufactures baseball bats. In addition to its work in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials. Its factory payroll costs include direct labor for production and indirect labor. All materials are added at the beginning of the process, and conversion costs are applied uniformly throughout the production process.

Required

You are to maintain records and produce measures of inventories to reflect the July events of this company. Set up the following general ledger accounts and enter the June 30 balances: Raw Materials Inventory, \(25,000; Work in Process Inventory, \)8,135 (\(2,660 of direct materials and \)5,475 of conversion); Finished Goods Inventory, \(110,000; Sales, \)0; Cost of Goods Sold, \(0; Factory Wages Payable, \)0; and Factory Overhead, \(0.

1. Prepare journal entries to record the following July transactions and events.
   1. Purchased raw materials for \)125,000 cash (the company uses a perpetual inventory system).
   2. Used raw materials as follows: direct materials, \(52,440; and indirect materials, \)10,000.
   3. Recorded factory wages payable costs as follows: direct labor, \(202,250; and indirect labor, \)25,000.
   4. Paid factory payroll cost of \(227,250 with cash (ignore taxes).
   5. Incurred additional factory overhead costs of \)80,000 paid in cash.
   6. Allocated factory overhead to production at 50% of direct labor costs.
2. Information about the July inventories follows. Use this information with that from part 1 to prepare a process cost summary, assuming the weighted-average method is used.

Units
Beginning inventory	5,000 units
Started	14,000 units
Ending inventory	8,000 units
Beginning inventory
Materials—Percent complete	100%
Conversion—Percent complete	75%
Ending inventory
Materials—Percent complete	100%
Conversion—Percent complete	40%

3. Using the results from part 2 and the available information, make computations and prepare journal entries to record the following:

g. Total costs transferred to finished goods for July (label this entry g).

h. Sale of finished goods costing \(265,700 for \)625,000 in cash (label this entry h).

4. Post entries from parts 1 and 3 to the ledger accounts set up at the beginning of the problem.

5. Compute the amount of gross profit from the sales in July. (Note: Add any underapplied overhead to, or deduct any overapplied overhead from, the cost of goods sold. Ignore the corresponding journal entry.)

Short answer

1. The total debit and credit side of the journal is$823,065
2. EUP for conversion,14,200
3. The cost of goods sold is$265,700
4. All ledgers related to the journal are shown in Step 5.
5. Gross profit is$345,425

Step-by-step solution

Meaning of Work-in-Process

Work in progress refers to those products or goods that are not completely manufactured but are in the manufacturing process.

(1) Preparing journal entries

Date	Particulars	Debit ($)	Credit ($)
July
a	Raw material inventory	125,000
	Cash		125,000
b	Work-in-process Inventory	52,440
	Factory overhead	10,000
	Raw material inventory		62,440
c	WIP Inventory	202,250
	Factory overhead	25,000
	Factory payroll payable		227,250
d	Factory payroll payable	227,250
	Cash		227,250
e	Factory Overhead	80,000
	Cash		80,000
f	WIP inventory	101,125
	Factory Overhead		101,125
		$823,065	$823,065

(2) Preparing cots summary

Major League Bat Company Process Cost Summary For the Month Ended July 31
Costs charged to production
Cost of beginning work-in-process
Direct material	$2,660
Direct labor	$3,650
Factory overhead	$1,825	$8135
The cost incurred during this period
Direct materials	$52,440
Direct labor	$202,250
Factory overhead	$101,125	$355,815
Total costs to account for		$363,950
Unit cots information
Unit accounted for		Unit accounted for
Beginning work-in-process	5,000	Completed & transferred out	11,000
The unit started this period.	14,000	Ending work-in-process	8,000
Total units to account for	19,000	Total units accounted for	19,000
Equivalent unit of production:	Direct materials	Direct labor	Factory Overhead
Units of goods completed and transferred out	11,000 EUP	11,000 EUP	11,000 EUP
Units of goods in the process (ending)
Direct materials	8,000 EUP
Direct labor		3,200 EUP
Factory overhead			3,200 EUP
Equivalent unit of production	19,000 EUP	14,200 EUP	14,200 EUP
Cost per EUP	Direct materials	Direct labor	Factory Overhead
Cost of beginning goods in process	$2,660	$3,650	$1,825
The cost incurred this period	$52,440	$202,250	$101,125
Total cost	$55,100	$205,900	$102,950
EUP	1,900 EUP	14,200 EUP	14,200 EUP
Cost per EUP	$2.90 per EUP	$14.50 per EUP	$7.25 per EUP
Cost assignment and reconciliation
Cost transferred out:
Direct materials	$31,900
Direct labor	$159,500
Factory overhead	$79,750	$271,150
Cost of ending goods in the process:
Direct materials	$23,200
Direct labor	$46,400
Factory overhead	$23,200	$92,800
Total cost accounted for		$363,950

Working note:Bifurcation of beginning work in progress conversion costs into direct labor and factory overhead

As factory overhead is 50% of direct labor

(3) Preparing journal entries

Date	Particulars	Debit ($)	Credit ($)
g	Finished goods inventory	271,150
	Goods in process inventory		271,150
h	Cash	625,000
	Sales		625,000
	Cost of goods sold	265,700
	Finished goods inventory		$265,700

(4) Posting entries into the ledger

Raw material Inventory
Date	Explanation	Debit	Credit	Balance
June 30	Balance			25,000
	Purchase	125,000		150,000
	Usage		62,440	87,560

Goods in Process Inventory
Date	Explanation	Debit	Credit	Balance
June 30	Balance			8,135
	Direct material	52,440		60,575
	Direct labor	202,250		262,825
	Overhead allocation	101,125		363,950
	Transfer to finished goods		271,150	92,800

Finished goods Inventory
Date	Explanation	Debit	Credit	Balance
June 30	Balance			110,000
	Transfer in from produced	271,150		381,150
	July sales		265,700	115,450

Sales
Date	Explanation	Debit	Credit	Balance
	Balance		625,000	625,000

Cost of goods sold
Date	Explanation	Debit	Credit	Balance
	July sales		625,000	625,000

Factory Payroll
Date	Explanation	Debit	Credit	Balance
	July costs	227,250		227,250
	Allocation		227,250	0

Factory Overhead
Date	Explanation	Debit	Credit	Balance
	Indirect material	10,000		10,000
	Indirect labor	25,000		35,000
	Other overhead cost	80,000		115,000
	Overhead application		101,125	13,875

(5) Computing Gross profit

Particulars	Amount
Sales	$625,000
Less: Cost of goods sold	$(279,575)
Gross profit	$345,425

Note: $279,575 = $265,700 + $13,875 (under applied overhead)