Bechtel Technical Clothing produces parkas used by arctic explorers, mountain cl

Question

Bechtel Technical Clothing produces parkas used by arctic explorers, mountain climbers, and people living in Minnesota. The company uses a standard costing system, and standards call for 2.5 yards of material at $55 per yard for each parka. The standard cost for labor is 3.5 hours at $35 per hour. Standard overhead is $14 per unit. For the year 2015, expected production is 8,000 parkas with fixed overhead of $58,000 and variable overhead of $6.3 per parka. During 2015, 8,500 parkas were manufactured. The company purchased 24,300 yards of material at a cost of $1,409,400. Production required 22,300 yards of material. The cost of direct labor was $1,020,000 for 27,500 hours. Actual overhead for the year was $88,700. All purchases are on account. a. Prepare a journal entry to record the purchase of material. b. Prepare a journal entry to record material used in production. c. Prepare a journal entry to record direct labor. d. Prepare a journal entry to record actual overhead and overhead applied. e. Prepare a journal entry to close the variances in requirements a through d to Cost of Goods Sold.

Explanation / Answer

(a)

DR Inventory - Raw Materials    $1,409,400

          Cash                                  $1,409,400

(To record purchase of materials)

(b)

[Material required for production = 22,300 yard x $(1,409,400 / 24,300 yards) = $1,293,400]

DR Work-in-Progress - Materials    $1,293,400

            Inventory - Raw Materials       $1,293,400

(To record use of materials purchased for production)

(c)

DR Work-in-progress - Direct labor $1,020,000

       Factory Payroll                         $1,020,000

(To record direct labor used in production)

(d)

Actual overhead = $88,700

Absorbed overhead = 8,500 units x $14 = $119,000

Since Absorbed overhead > Actual overhead cost, overhead is over-applied by $(119,000 - 88,700) = $30,300.

(i)

DR Work-in-progress - Overhead   $119,000

         Manufacturing overhead          $119,000

(To record overhead applied)

(ii)

DR Manufacturing Overhead   $30,000

         Cost of Goods Sold           $30,000

(To record over-applied manufacturing overhead)

NOTE: Out of 5 sub-parts, the first 4 are answered in full.

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