Soldatna Corporation\'s controller frequently prepared T-accounts to analyze inv

Question

Soldatna Corporation's controller frequently prepared T-accounts to analyze inventory. However, his penmanship was poor and he is no longer employed by the company. The following was reconstructed from a scratch pad left on his desk. The missing values (?) were illegible. Analyze the information and answer the requirements that follow. Raw Materials Cost of Goods Sold beg. bal. ? ? 491,000 ? 175,000 491,000 ? 175,000 ? 481,000 102,000 Work in Process Factory Overhead beg. bal. 44,000 460,000 35,000 ? 113,000 40,000 ? 75,000 ? ? 477,000 ? ? ? ? ? Finished Goods beg. bal. 131,000 ? ? ? ? 100,000 (a) Overhead is applied at 100% of direct labor cost. How much was direct labor? (b) Was overhead over- or underapplied, and by how much? (c) Which inventory category increased? (d) Other factory overhead, besides indirect material and indirect labor, was $75,000. Indirect labor was 25% of the direct labor. How much was indirect material? (e) How much was cost of goods manufactured? Soldatna Corporation's controller frequently prepared T-accounts to analyze inventory. However, his penmanship was poor and he is no longer employed by the company. The following was reconstructed from a scratch pad left on his desk. The missing values (?) were illegible. Analyze the information and answer the requirements that follow. Raw Materials Cost of Goods Sold beg. bal. ? ? 491,000 ? 175,000 491,000 ? 175,000 ? 481,000 102,000 Work in Process Factory Overhead beg. bal. 44,000 460,000 35,000 ? 113,000 40,000 ? 75,000 ? ? 477,000 ? ? ? ? ? Finished Goods beg. bal. 131,000 ? ? ? ? 100,000 (a) Overhead is applied at 100% of direct labor cost. How much was direct labor? (b) Was overhead over- or underapplied, and by how much? (c) Which inventory category increased? (d) Other factory overhead, besides indirect material and indirect labor, was $75,000. Indirect labor was 25% of the direct labor. How much was indirect material? (e) How much was cost of goods manufactured?

Explanation / Answer

The complete T accounts as and where applicable have been shown below:

_________

_________

_________

_________

The answers to the questions are provided below:

a) $160,000 [we need to calculate the factory overhead (refer to factory overhead T account). Since, overhead is applied at 100% of direct labor cost, it would mean that direct labor would have been $160,000 only]

_________

b) The overhead was overapplied by $10,000. [refer to cost of goods sold account, the difference (491,000 - 481,000) between the debit and credit balance would indicate the value of overapplied overhead]

_________

c) The raw material inventory category has increased.

_________

d) The value of indirect material is calculated as follows:

Indirect Material = 160,000 - 75,000 (Other Factory Overhead) - 40,000 (Indirect Labor) - 10,000 (Overhead Overapplied) = $35,000 (refer to factory overhead T account)

_________

e) The cost of goods manufactured is $460,000 (refer to finished goods T account). It can be calculated with the use of following formula:

Cost of Goods Manufactured = Cost of Goods Sold + Closing Stock of Finished Goods - Opening Stock of Finished Goods = 491,000 + 100,000 - 131,000 = $460,000

Cost of Goods Sold 491,000 10,000 (491,000 - 481,000) 491,000 481,000

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