Conundrum, Inc. manufactures puzzles. Due to a fire in the administrative office

Question

Conundrum, Inc. manufactures puzzles. Due to a fire in the administrative offices, the accounting records for September of the current year were partially destroyed. You have been able to piece together the following information from the ledger.

Upon examining various source documents and interviewing several employees, you were able to gather the following additional information.

Overhead is applied using an annual predetermined overhead rate using direct-labor hours (based on practical capacity).

Budgeted direct-labor cost for the current year is $960,000. The direct-labor rate is $20 per hour.

The accounts payable balance on September 30 was $1,000. Only purchases of raw material are credited to accounts payable. A payment of $81,000 was made on September 15.

Payments of $79,500 were made to direct-labor employees during September. The August 31 balance in the Wages Payable account was $1,000.

An analysis of the puzzles still in process on September 30 revealed that so far these items have required 500 hours of direct labor and $20,700 of direct material.

Upon examining various source documents and interviewing several employees, you were able to gather the following additional information.

Raw-Material Inventory Accounts Payable 40,000 12,100 Bal. 8/31 Bal. 9/30 45,000 Work-in-Process Inventory Finished-Goods Inventory Bal. 8/31 8,000 Bal. 8/31 35,000 Manufacturing Overhead Cost of Goods Sold 60,000 Wages Payable Sales Revenue 1,600 Bal 9/30 Accounts Receivable Bal. 8/31 8,000

Explanation / Answer

a) calculation of missing figures

1. Sales revenue for Sept. = 180000x120% = 216000

2. Sept 30 balance in accounts receivable = 19000 (as per the account in 2nd part

3. Cost of raw material purchased during sept. = 69900

4. September 30 bal in wip = 38200

Direct material . 20700

Labour (500x20) . 10000

Overhead (500x15) .7500

Total WIP . 38200

(Total budgeted labour hrs = total budgeted labour cost/labour rate=960000/20=48000 hrs

Overhead rate = total overhead/hrs =720000/48000=15)

5 .Direct labour added to wip = 80100

6 applied overhead for Sept =(80100/20)x20=60075

7 cost of goods completed during Sept = 192475

8 .raw material used during Sept = 40000

9 .Aug 31 inventory Bal= 15100

10 .Overapplied overhead = 75

All the above figures can be understood from below accounts

Raw material inventory a/c

Accounts payable a/c

WIP

Finished goods

Manufacturing overheads

To bank

By bal c/d

60000

75

by wip

60075

Cost of goods sold

Sales

Wages payable

Account receivable

To Bal b/d 15100 By WIP 40000 To accounts payable 69900 By bal c/d 45000

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