Solutions Guide: Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as isE2-6Instructions(a) Answer the following questions.(1) What are the source documents for direct materials, direct labor, and manufacturing overhead costs assigned to this job?(2) What is the predetermined manufacturing overhead rate?(3) What are the total cost and the unit cost of the completed job?(b) Prepare the entry to record the completion of the job.(a) (1) The source documents are:Direct materials—Materials requisition slips.Direct labor—Time tickets.Manufacturing overhead—Predetermined overhead rate.(2) The predetermined overhead rate is 120% of direct labor cost. For example, onJuly 15, the computation is $528 ÷ $440 = 120%. The same result is obtained onJuly 22 and 31.(3) The total cost is:Direct materials ........................................................................................ $4,825Direct labor ............................................................................................... 1,360Manufacturing overhead ......................................................................... 1,632$7,820 The unit cost is $3.91 ($7,820 ÷ 2,000).(b) July 31Finished Goods Inventory ............................................................. 7,820Work in Process Inventory ....................................... 7,820 E2-9 At May 31, 2005, the accounts of Yellow Knife Manufacturing Company show thefollowing.1. May 1 inventories—finished goods $12,600, work in process $14,700, and raw materials$8,200.2. May 31 inventories—finished goods $11,500, work in process $17,900, and raw materials$7,100.3. Debit postings to work in process were: direct materials $62,400, direct labor $32,000,and manufacturing overhead applied $48,000.4. Sales totaled $200,000.Instructions(a) Prepare a condensed cost of goods manufactured schedule.(b) Prepare an income statement for May through gross profit.(c) Indicate the balance sheet presentation of the manufacturing inventories at May 31,2005.(a) YELLOW KNIFE MANUFACTURING COMPANYCost of Goods Manufactured ScheduleFor the Month Ended May 31, 2005Work in process, May 1 .............................................................. $ 14,700 Direct materials used .................................................................. $62,400Direct labor .................................................................................. 32,000Manufacturing overhead applied .............................................. 48,000Total manufacturing costs ................................................ 142,400 Total cost of work in process...................................................... 157,100 Less: Work in process, May 31 ................................................. 17,900 Cost of goods manufactured ...................................................... $139,200 (b) YELLOW KNIFE MANUFACTURING COMPANY(Partial) Income StatementFor the Month Ended May 31, 2005Sales .......................................................................................... $200,000Cost of goods soldFinished goods, May 1 ................................................... $ 12,600Cost of goods manufactured ......................................... 139,200Cost of goods available for sale ..................................... 151,800Finished goods, May 31 ................................................. 11,500Cost of goods sold ................................................. 140,300 Gross profit ............................................................................... $ 59,700 (c) In the May 31 balance sheet, the manufacturing inventories will be reported incurrent assets as follows: Finished goods $11,500, Work in Process $17,900, andRaw Materials $7,100.E3-5 The Sanding Department of Han Furniture Company has the following productionand manufacturing cost data for April 2005.Production: 12,000 units finished and transferred out; 3,000 units started that are100% complete as to materials and 40% complete as to conversion costs.Manufacturing costs: Materials $36,000; labor $30,000; overhead $37,320.InstructionsPrepare a production cost report. There is no beginning work in process.HAN FURNITURE COMPANYSanding DepartmentProduction Cost ReportFor the Month Ended April 30, 2005Equivalent UnitsQuantities PhysicalUnits MaterialsConversionCostsUnits to be accounted forWork in process, April 1Started into productionTotal unitsUnits accounted forTransferred out15,00015,00012,000 12,000 12,000Work in process, April 30 3,000 3,000 1,200 (3,000 X 40%) Total units 15,000 15,000 13,200Costs Materials ConversionCosts TotalUnit costsCosts in April (a)Equivalent units (b)Unit costs (a) ÷ (b)Costs to be accounted forWork in process, April 1Started into productionTotal costs $36,00015,000$2.40$67,32013,200$5.10$103,320$7.50$ 0103,320$103,320Cost Reconciliation Schedule Costs accounted forTransferred out (12,000 X $7.50) Work in processMaterials (3,000 X $2.40) Conversion costs (1,200 X $5.10) Total costs $7,2006,120$ 90,00013,320$103,320E3-9 Mary Mahr has recently been promoted to production manager, and so she hasjust started to receive various managerial reports. One of the reports she has received isthe production cost report that you prepared. It showed that her department had 1,000 equivalent units in ending inventory. Her department has had a history of not keepingenough inventory on hand to meet demand. She has come to you, very angry, and wantsto know why you credited her with only 1,000 units when she knows she had at leasttwice that many on hand.InstructionsExplain to her why her production cost report showed only 1,000 equivalentunits in ending inventory. Write an informal memo. Be kind and explain very clearly whyshe is mistaken.To: Mary MahrFrom: StudentRe: Ending inventoryThe reason for any confusion related to your department’s ending inventory quantity stems from the fact that the quantity can be measured in two different ways, depending on what the information is used for.The ending inventory quantity can be measured in physical units or equivalent units. Physical units are actual units present without regard to the stage of completion. Your department’s ending inventory in physical units is at least double the amount reported as equivalent units.Equivalent units measure the work done on the physical units, expressed in terms of fully completed units. Therefore, if your ending inventory contains 2,000 units which are 50% complete, that is equivalent to having 1,000 completed units at month end. Therefore, that ending inventory could be expressed as containing 2,000 physical units or 1,000 equivalent units.I hope this clears up any misunderstandings. Please contact me if you have any further questions.1. Depreciation Expense (750)Accumulated Depreciation – Equipment (750)2. Unearned Rent Revenue ...............................................................................3,100Rent Revenue........................................................................................3,1003. Interest Expense (500)Interest Payable (500)4. Supplies Expense ...........................................................................................1,950Supplies .................................................................................................1,9505. Insurance Expense (900)Prepaid Insurance (900)。
