BagsSoStrong Company had the following account balances as of August 1, 2001:
During August, the company incurred the following factory costs: Purchased $82,000 of raw materials on account.
Issued $90,000 of raw materials, of which $67,000 were direct to the product. Factory payroll of $44,000 was accrued; $31,000 was for direct labor and the rest was for supervisors.
Utility costs were accrued at $3,500; of these costs, $800 were fixed. Property taxes on the factory were accrued in the amount of $1,000. Prepaid insurance of $800 on factory equipment expired in August. Straight-line depreciation on factory equipment was $20,000. Predetermined overhead of $62,500 ($28,000 variable and $34,500 fixed) was applied to Work in Process Inventory.
Goods costing $170,000 were transferred to Finished Goods Inventory. Sales on account totaled $350,000. Cost of goods sold was $175,000.
Selling and administrative costs were $140,000 (credit "Various Accounts"). Ending Work in Process Inventory is $3,300.
a. Journalize the transactions for August.
b. Prepare a schedule of cost of goods manufactured for August using normal costing.
c. Prepare an income statement, including a detailed schedule of cost of goods
Raw Materials (direct and indirect) Inventory Work in Process Inventory Finished Goods Inventory
Solution to Demonstration Problem a. (1) Raw Materials Inventory Accounts Payable
(2) Work in Process Inventory Variable Overhead Control Raw Materials Inventory
(3) Work in Process Inventory Fixed Overhead Control Salaries and Wages Payable
(4) Variable Overhead Control Fixed Overhead Control Utilities Payable
(5) Fixed Overhead Control Property Taxes Payable
(6) Fixed Overhead Control Prepaid Insurance
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